STAMFORD, Conn. - T. Britton (Britt) Harris IV is charting new strategies at GTE Investment Management Corp., after the firm's successful ventures in total quality management and global strategic management.
Mr. Harris is the new president of GTE Investment Management, which oversees GTE Corp.'s $16 billion defined benefit plan and $4 billion defined contribution plan. He succeeds John Carroll, a vice president of GTE Corp.and a senior adviser to the investment management company. Mr. Harris was previously senior vice president, a position that has not been filled, since the organizational structure was changed.
In a recent interview at GTE's Stamford, Conn., headquarters, Mr. Harris talked about the goals he has set in his new post:
* Becoming a complete investment management company, managing money all over the world in public and private markets through internal and external management.
* Defining what it means to deliver profit in an investment management enterprise.
To accomplish those goals, GTE is developing:
* A series of global valuation models;
* An internal quantitative capability to deliver separate portfolios in every major asset class or style;
* Sophisticated measurement tools that provide more information on how and why individual processes are or are not working;
* Increased ability to define the management processes in a risk-sensitive way; and
* More effective trading.
Mr. Harris joined GTE in 1991. His most talked-about action came in 1995, when he created a novel strategic partnership program: Four large money managers each got at least $1 billion to invest, using strategies specifically customized for GTE. Each invests in 10 asset classes.
That program now makes up $5.8 billion - or 36% - of defined benefit assets. Those assets have returned a cumulative 65% since inception of the program, 11% over its benchmark. Mr. Harris declined to say how the individual partners had done.
GTE's managers - seven internal managers, 15 to 20 external firms and the four strategic partners - invest in five macro asset classes: stocks, bonds, cash, currency and private investments. They hold investments in 45 countries.
The pension fund's global allocation is 70% stock, 25% bonds, 5% cash.
GTE manages $4 billion of its defined benefit plan internally; $5.8 billion is allocated to the strategic partnerships; $5 billion is allocated to external managers; and $1.2 billion is in private investments.
Currently, Mr. Harris is formally dividing the fund into four subdivisions - strategic partnerships, internal management, specialist (i.e. external) management and private investments.
With all he's accomplished at GTE, it's hard to believe that Mr. Harris had hesitated about accepting an offer to join the firm six years ago.
He said he worried he and Mr. Carroll might be too strong-willed to work together, and he wasn't sure what he could do for the pension fund because it already was performing well.
Mr. Carroll assured Mr. Harris he was laying out a succession plan and that he was ready to leave the spotlight. And Mr. Carroll lived up to his promises. "I was free to do what I wanted," said Mr. Harris. "John was very secure in his own legacy."
Mr. Harris had made a name for himself in the industry by boosting returns of the pension funds at Texas Utilities Co. Inc. and Combustion Engineering Inc.
At GTE, he decided to try to apply to financial services the kind of total quality management used in manufacturing production. He selected 10 benchmarks companies and organizations, including manufacturers and investment banks as well as one endowment and two pension funds.
It was difficult to work out a process that made sense, but once completed, it allowed GTE to increase the assets managed internally, Mr. Harris said.
"We have doubled our capacity for managing portfolios internally by standardizing our investment approach, building valuation tools and using technology."
Assets managed internally grew 50% in the last three years and the number of internal managers to seven from three.
"In addition, we have improved the reliability of our processes and have delivered to GTE the types of excess returns we are targeting for that section of the portfolio, after costs," he added.
Nine portfolios are managed internally, rolled into four asset classes: domestic equity, including large-capitalization growth, large-cap value, small-cap growth and value, core and sector overlay; international equity, which includes country overlay and international equity; U.S. fixed income, which includes bonds and options overlay; and cash. Another in-house portfolio, which uses an emerging markets equity style, is in the pilot stage.
In the last three years, the internal group has outperformed domestic and international stock indexes and was even with its U.S. bond benchmark, he said. The staff includes 20 investment professionals and 10 administrative pros.
Benchmarking prompts changes
Studying the operations of one benchmark company - Cypress Semiconductor Corp., San Jose, Calif. - helped Mr. Harris find ways to identify when certain processes were working and when they weren't, he said. It also led to new ways of compensating investment staffers, resulting in a whole new thought process, he said.
Another benchmark company was Motorola Inc., Schaumburg, Ill., whose executives advised him to think of money managers as suppliers who could be partners, instead of adversaries.
"We had to map out processes. Investing is a basic repeat process. It's not like producing screwdrivers, but there is a consistency there. The question became, 'What are the critical processes to investing?'*"
His conclusions: alpha production, cost control, risk management, trading, operations, communications and staffing.
The strategic partnership program developed out of similar exchanges of ideas, and was officially launched in April 1995. Firms involved are Morgan Stanley & Co., Goldman, Sachs & Co. and J.P. Morgan & Co., all of New York, and Grantham, Mayo Van Otterloo & Co. L.L.C., Boston.
Mr. Harris said he is pleased with the current lineup, but pointed out the program is not yet completely proven since it isn't even 3 years old.
He doesn't rule out bringing in partners as the program evolves.
"We talked to eight firms before starting, but there are no more than 10 who could deliver this service," Mr. Harris said. "It is so demanding physically and emotionally. We looked first to the people who had the capability where there was already a relationship. It seemed wise to be working with people we already knew.
"There was a lot of dirty work involved initially," Mr. Harris remembered. "We had to be sure we had a common communication system, that our definitions were similar, that we negotiated the same fee structures with all. We had to connect our people to their people and set up reverse relationship management so that we had people assigned to them."
Another issue was determining how to measure success.
"None of us wants a precise measuring system," Mr. Harris said, "but what gets measured gets done, so a more precise measuring system than ever before was needed, to improve things, to identify when the operation is not running smoothly.
"We needed to know where the value is coming from."
The result was specific global benchmarks against which the managers would be measured.
As head of GTE Investment Management, he also plans to:
* Maximize the use of external resources, which includes arranging for research customized for GTE and leveraging the three-person internal research staff by having the staff analysts work more closely with analysts at its four strategic partners.
* Serve as a resource for the parent company. For example, from its investment processes, GTE Investment Management has a global information system that GTE could use.
Remembering earlier days
Despite his success, Mr. Harris hasn't forgotten his early days. During the interview, he pointed out a favorite piece in his camouflage art collection, and described how in 1984 his wife bought the $300 painting for him by putting it on lay away, paying $20 a month. The artist, Bev Doolittle, has made a name for herself since then and her prices have skyrocketed, Mr. Harris said.
His career has moved in a similar upward sweep.
After studying finance and accounting at Texas A&M University, he started his career in 1980 as a senior accountant at Texas Utilities, where part of his job involved restructuring the $300 million pension fund.
He taught himself the principles of investing while riding the bus to and from his job; within three years the pension fund assets had tripled to $1 billion. The pension industry took notice, and Mr. Harris quickly became a rising star, known for his innovative style. The term "innovator" stuck as he moved on to bigger and better jobs, including assistant treasurer at Combustion Engineering Inc. and managing director at ABB Inc.
Mr. Harris' career might have taken a different direction had he gone to business school, a path he normally recommends.
But he was "madly in love" with his now-wife Julia, so he got married and went to work instead.
When Texas Utilities offered him $17,000 a year to be a senior accountant, he grabbed it. "Julia and I met when we were 14, and have been married 21 years," he said with pride.
At Texas Utilities, Mr. Harris had the mandate to improve the pension fund's return. After learning about such theories as low price-earnings ratio investing, he was able to make recommendations that contributed to tripling the portfolio's assets.
It was nothing "earth shattering," he insisted. He restructured the asset allocation, moved into stocks, hired value-oriented managers and improved the bond portfolio.
"It was the mid-'80s - a time when you could do simple things and be successful. It's much more complicated today," he said.