BERKELEY, Calif. - BARRA Inc. is pushing ahead with quantitative investment management on its own following the breakup of a planned joint venture with Citibank Global Securities Corp., New York.
Citibank and BARRA agreed to end the partnership, sources say, when their separate interests and ambitions couldn't be contained in the partnership structure and its evolving investment operation, Alta Capital.
BARRA executives won't comment, but sources say they expect success from their planned new investment management subsidiary, Symphony Asset Management, San Francisco, which will be managed in part by three former Wells Fargo Nikko executives. Some Alta employees also will move to Symphony.
Symphony, like Alta, will be able to use the considerable technological expertise of BARRA in building quantitative investment models.
As a public company, however, sources say BARRA is risking considerable capital to form Symphony. Costs include salaries, rent and equipment.
BARRA also has to convince consulting clients its investment management operations won't compromise its consulting services.
BARRA makes analytical software, builds computer models and collects, interprets and supplies giant securities databases to investment managers and plan sponsors internationally. But BARRA isn't known as an investment manager.
BARRA's Symphony also must offer investment management products that won't be seen as competing with any of BARRA's 576 worldwide consulting clients, including Wells Fargo Nikko and Martingale Asset Management, Boston, sources say.
Symphony's new chairman, Andrew Rudd, has built relationships and worldwide confidence as chief executive officer of BARRA. But Mr. Rudd is expected to only serve as a caretaker to avoid any uneasiness concerning conflicts as head of the consulting arm.
While difficulties exist, BARRA and Symphony executives see the investment operation as having many good attributes, including some well-known key executives. Jeffrey Skelton will be Symphony's CEO. He is a former co-chief investment officer and vice chairman of Wells Fargo Nikko Investment Advisors, San Francisco. Mr. Skelton also opened Wells Fargo Nikko Investment Advisors in London.
Michael Henman, who recently joined Symphony after being a managing director in charge of the 500 client contacts for Wells Fargo Nikko, will bring an intimacy with pension funds and other investors most new investment firms don't have.
Symphony, which plans to market mutual funds, has Neil Rudolph on staff, the former head of the mutual fund group at Wells Fargo Nikko and a managing direct there. All three of the former Wells Fargo Nikko executives are being motivated with equity interest in Symphony, sources say, and equity interest played a part in their moving to Symphony.
To help put together attractive new products, Symphony has formed a relationship with CDA/Investnet Insiders' Chronicle, a Fort Lauderdale, Fla., newsletter that tracks the investment trading of corporate executives and independent corporate directors.
Symphony will cross-reference BARRA databases and use computer analytical models to seek patterns in executive trading of corporate insiders, sources say.
Symphony and BARRA executives claim insider trading gives stronger investment signals than investment data like price-to-book ratios, although the more traditional quantitative methods will be used and integrated with insider trading signals.
Symphony also will track the patterns of securities analysts.
In an attempt to dispel the idea that Symphony lacks investment experience, Symphony executives will point out, sources say, that BARRA has been making the quantitative tilt and other models that have been driving some of the investment trading nationally and internationally for Wells Fargo Nikko and others since 1985.
Some investors call tilt models enhanced index models, but BARRA views them as quantitative active models. BARRA has been calling those models for others its subadvisory products, and it plans to spin that work off to Symphony, partly to put greater distance between BARRA consulting work and its investment model production.
Even though BARRA's joint venture with Citibank is dead, Symphony and Citibank will have what Symphony executives are calling contractual relations. Citibank is expected to offer Symphony products to its clients, and Symphony is expected to design investment models for specific Citibank investment products. Symphony, Citibank and CDA/Investnet will have fee-sharing arrangements where applicable.