CHICAGO - Gary P. Brinson faces what might be his biggest challenge yet merging the investment cultures of Swiss Bank Corp.'s traditional bond-oriented institutional arm with the highly structured Brinson Partners Inc.
The Basle-based bank acquired Brinson's firm in a $750 million deal announced in September 1994. The resulting investment management organization has two names: Brinson Partners Inc. in the United States and SBC Brinson in the rest of the world, where parent company Swiss Bank Corp.'s moniker helps open doors.
Mr. Brinson's investment factory, as he refers to his firm, runs $72 billion in institutional assets plus an additional $47 billion in mutual fund assets (predominantly shorter maturity fixed-income securities) for the bank's private banking arm.
SBC Brinson's net profits rose to 67 million Swiss francs ($50 million) last year, up 67.5% from 1995.
As a result of the combination of the two firms, Mr. Brinson must meld a hodgepodge of SBC operations around the world into one streamlined and tightly structured entity.
"We have . . . (assembled) the architecture and framework and the institutional foundation," Mr. Brinson explained. "Now we have to do the simplest to say and the hardest to do: the execution."
Merging these disparate and previously autonomous entities might not be easy. Said Brian Hersey, director-investment manager research for Towers Perrin, Atlanta: "It's a big challenge to an organization as it expands the number of locations and people who have input on the decision-making process."
In the last major piece of the integration efforts, Mr. Brinson became chief investment officer of SBC's Swiss institutional business Jan. 1 - a notable move by an American into the typically insular Swiss culture.
While the Swiss institutional business is relatively small, with only $12 billion in assets, compared with an estimated $250 billion in private client money, Brinson's ways of doing things are new to Swiss portfolio managers.
"The domestic Swiss business has not yet been Brinsonized," one observer said.
Mr. Brinson said the organizational structure focuses on three areas: global investment management and research; client servicing; and back-office operations.
"We went to each of the SBC subsidiaries," he said, "and looked at the people, process and capabilities that were there."
Explaining his vision for the firm, Mr. Brinson invited SBC officials to join. More than 80% of existing personnel did.
In Australia, for example, SBC enjoyed strong bond performance and Brinson officials kept the team there, although they shut down the equity operation because of its poor record.
In Singapore, the research and client serving staff remained, but under a new boss. In London, the transfer was "seamless," Mr. Brinson said.
The Swiss challenge
While the toughest challenge remains in Switzerland, sources said SBC officials largely have welcomed Brinson Partners. The integration enables them to be part of a "top-tier investment firm," one observer said.
Still, "you can't expect to take a lot of former portfolio managers and turn them into financial analysts and expect it to work from Day One," he added.
One Swiss source said portfolio managers have lost their autonomy. In addition, asset management has been shifted entirely to Basle, while the Zurich office has been converted solely to a client servicing operation, which has upset some employees there.
Said Divyesh Hindocha, a partner with William M. Mercer Investment Consulting, London: "There's an attempt to spread the Brinson mantra across the whole of the group." The hardest part, he added, will be to win over the Swiss private banking side for which SBC Brinson essentially provides a wholesale product.
On the pension side, there also are hurdles. One Swiss pension consultant worries about the three- to five-year time horizon SBC Brinson officials are preaching. Swiss pensions funds need results within 12 months, largely because of regulatory requirements to produce a minimum 4% annual return, he said.
The consultant also noted the bank's money management arm and its investment banking arm, SBC Warburg, sometimes produce differing forecasts. Traditionally in continental Europe, financial institutions speak with one voice.
Mr. Brinson said he is impressed with the credentials of the 165 professionals, spread among Basle, Zurich and Geneva. Still, the Swiss will have to shift from running an essentially domestic fixed-income operation to becoming part of a global business.
Mr. Brinson said firm officials don't detect any ruffled feathers. Rather, Swiss officials are pleased because they will get out of a banking environment, he said.
Nevertheless, he acknowledges there may be former SBC professionals who are unhappy with the merger, and might not fit into the firm's highly structured culture.
A vast global platform
Mr. Brinson believes the integration of the firm and access to the Swiss bank's research, capital and technology will help Brinson Partners develop into a firm well suited to the evolving nature of global securities markets.
It already is becoming impossible to manage U.S. equities without considering global competitors, Mr. Brinson said. Adoption of a single currency will hasten this trend in Europe, he noted.
In addition, Mr. Brinson said the integration with SBC's operations will help build a global platform to further international diversification. While Brinson Partners is well known in the United States, it would take far longer to expand overseas without a recognized foreign partner, he acknowledged.
Still, the firm might have to take different approaches in non-U.S. markets, which vary in sophistication.
As a result, Mr. Brinson might consider subadvisory contracts with other financial institutions. No such third-party arrangements have been made as of yet.
Broad array of products
The firm manages a wide range of strategies. It runs nearly $30 billion in equities, including $12.6 billion in U.S. equities where the firm - going to its days as a unit of First Chicago National Bank - has developed an enviable track record producing added value exceeding 300 basis points annually over the past 15 years.
Brinson Partners also manages $21.7 billion in fixed-income vehicles, $18.9 billion in asset allocation/balanced strategies and $1.3 billion in venture capital assets. In the first 11 months of last year, the firm pulled in $5 billion in new business from U.S. institutions, and about $800 million for non-U.S. pension clients.
The firm is known for providing added value from asset allocation. Mr. Brinson said that over the firm's 15-year history, about half of added value has come from asset allocation, one-quarter from securities selection and one-quarter from currency management. Sources, however, said the firm is working on improving stock-picking capabilities.
All the same, Brinson Partners has chalked up a remarkable record. In fact, most of the time the firm has missed the mark has been when it has made its calls too early.
In 1981, Brinson bought long-duration Treasuries at 13.5% only to see yields shoot to 15%. Two years later, interest rates had begun a dramatic decline toward present levels.
"In retrospect, it turned out to be a brilliant strategy," he said, although the firm lost some clients because of the bet.
Similarly, several clients departed in the summer of 1987 because the firm backed away from U.S. equities. Brinson also got out of Japan in 1989, before the equity market collapsed. In the past 12 to 18 months, the firm called Japan correctly, but completely hedged out of the yen.
"You live through these things," Mr. Brinson said. In the long run, "you have to stay with your fundamental judgment."
Long way from his roots
Running one of the world's pre-eminent money management firms is a long way from Mr. Brinson's roots in Seattle. He is the son of a construction foreman who built snowsheds for the railroad and a mother who worked at Sears, Roebuck & Co. While his father had only a fourth-grade education, he knew the world was changing and that his son should go to college, Mr. Brinson said.
His entrance into money management was almost a fluke: After being accepted in spring 1969 into Stanford University's doctorate program in finance in preparation for a life in academia, Mr. Brinson won a summer internship working for Eli Shapiro, chairman of the finance committee at Travelers. He got the investment bug and spent 10 years in Hartford, rising to chief executive of Travelers Investment Management Co.
First National Bank of Chicago lured him away in 1979. Ten years later, he engineered a buy-out of 90% of the firm's equity for $102 million in cash, notes and dividends. In 1994, the firm's $750 million sale - payable over 11 years - stunned money managers around the world.