Like elephants on the plain, big players in the investment industry rarely keep a low profile. However, weighing in with assets under management of some $200 bn, and tracing its origin to 1928, Wellington Management Company has done just that.
‘We prefer a quiet approach,’ says Perry Traquina, partner and associate director of global industry research at Boston-based Wellington Management. ‘We would rather devote our energy to managing client assets.’ Wellington’s exclusive focus on asset management and investment counselling is underlined by the fact it does not distribute or sponsor mutual funds on a retail basis. Yet Wellington Management has a trunk full of clients. It is investment advisor to more than 400 institutional customers and over 100 mutual fund portfolios covering a wide range of investment styles.
While Wellington Management may have a relatively small public profile, it is big on research. The linchpin driving most of the research is the global industry group where a core of 31 analysts take a worldwide approach and evaluate investments on an industry basis.
The world is getting substantially smaller,’ notes Traquina. ‘Competition is often driven by firms outside a company’s primary geographic area. To analyze an industry only on a geographic basis makes no sense. You are leaving out a big part of the equation.’
Scouring the world
Led by Gene Tremblay, director of global research, Traquina and the other global analysts spend a third of their time on the road, scouring the world for good investments, comparing Nokias with Motorolas, Cemexs with Lafarges. The research team is responsible for making stock recommendations to an array of portfolio managers. Each analyst has a unique analytical orientation and monitors about 200-300 companies, actively covering 50-60.
Because Wellington Management runs money in so many styles, there is no single screen for companies. ‘Often, one man’s trash is another’s treasure,’ notes Traquina. ‘It depends on the industry. Our group has sufficient leeway to structure whatever approach we think will make money for our clients.’
Indeed, Wellington Management can best be described as a collection of investment boutiques all located in one firm with access to an array of centralized resources. Wellington has no centralized decision-making body on the investment side. Nor does it have a CIO. At Wellington, analysts are the foundation upon which it builds its portfolios.
‘As a career, we view research on a par with portfolio management,’ says Traquina. ‘There is no view here that you must pay your dues for a few years and then move upward to the great job of portfolio manager. Our approach is to get people to look at industries over long periods. If someone is good at research and enjoys it, then they should be able to continue that and be rewarded accordingly.’
Long-term approach
Traquina is a poster boy for that philosophy. He began doing research 17 years ago and is still at it, now following companies in the information services business. Many of his colleagues have similar resumes and many are also partners in the firm. Analysts have an average of more than 15 years professional experience, almost a decade of them with Wellington Management. All Wellington’s research is strictly proprietary.
Like other investment managers, the firm keeps tabs on broker research but doesn’t rely on the Street for recommendations. Instead, it uses broker knowledge and contacts to get an understanding of where consensus is on a particular company or issue.
When an analyst recommends a stock to a portfolio manager, a price target is set. But, given the diversity of Wellington-managed portfolios and client mandates, price targets and turnover vary greatly.
Once a mandate has been laid down by a client (growth, value and so on), portfolio managers have 100 percent latitude to pick stocks within that universe. And most clients give Wellington Management complete discretion over corporate governance matters. ‘We have corporate governance guidelines, and we stick by them,’ says Traquina. ‘If a company does something inappropriate, we will vote against them.’
Governance is not Wellington Management’s cause celÃ…bre, but at least one former managing partner has made headlines over the issue. John Neff, manager of the Windsor Fund, was elected a Chrysler director in 1996 after dissidents demanded changes.
While Neff left to take up new duties, Wellington Management won’t stand for partners with fiduciary responsibilities to their peers bolting the fold. A court case in March pitted Wellington against a former partner, Arnold Schneider, who left in 1996 to start his own investment firm. Several big name clients, including Tacoma-based Frank Russell and RJR Nabisco Holdings, followed Schneider. Wellington sued, claiming Schneider had solicited them in violation of the partnership agreement’s non-compete clause.
Such agreements are common in the industry but rarely enforced. In this case, the court stripped Schneider of his old clients and the decision promises to make money managers – at least those who are partners – think twice before jumping to a competitor if they have a non-compete clause. Schneider is appealing. ‘Our partnership structure creates an environment where partners can share together in what they have built together,’ comments Lisa Finkel, vice president at Wellington Management. ‘It ensures continuity in our ability to provide services to clients. And we take that very seriously.’
Sharing information
Continuing in a tradition that began almost 40 years ago, Wellington Management’s global research analysts, economists and other professionals gather each morning in specially-designed amphitheaters throughout the firm’s offices, linked via phone conference and data feeds to all of Wellington Management’s investment professionals around the world.
These meetings are the ‘touchstone’ of the company’s corporate culture. As Wellington literature notes, ‘They provide a larger forum than a phone call; a more spirited exchange than a memo; and a more rational analysis than the average business lunch.’ Still, in the Wellington tradition, the morning meetings do not seek consensus. Rather, they strive for insight: ‘We have no big monthly pow-wow to figure out what stocks we definitely are going to buy,’ points out Traquina.
Meanwhile, Wellington Management’s offices at 75 State Street see a regular procession of supplicant company managements, with up to 20 companies a day making presentations. ‘We rarely have to go to a company lunch,’ notes Traquina. ‘Companies usually come here. Our lobby sometimes resembles Grand Central Station.’
When a company makes an appointment, analysts then notify fund managers. The analyst conducts the meeting and if they like what they hear, they will recommend the company to the portfolio managers they feel are appropriate. ‘You can practically put every public company someplace in our shop if the analyst likes the story,’ says Traquina.
For a research analyst, the more information the better, so those companies that keep links open through good times and bad tend to get a better hearing. ‘Openness and the willingness to discuss different issues are a definite plus for companies seeking analyst recommendations,’ says Traquina. ‘IROs who won’t set up meetings or provide the information that we need can be a roadblock.’
‘The most effective thing IR people could do in dealing with our company is to keep a sign in their office saying No surprises,’ adds Gene Tremblay. The last thing analysts here want is a surprise.
