SAN FRANCISCO -- To paraphrase the late President Kennedy, Harry Smith hopes his firm's recent deal with Value Asset Management will one day result in passing the torch to a new generation of money managers.
As a partner at Harris Bretall Sullivan & Smith L.L.C., San Francisco, Mr. Smith sees it as vital that the firm's younger generation continue in the tradition established when the company was founded in 1971.
"We've always tried to build a company that transcended the individuals," Mr. Smith said.
"For some time now, we've talked about ways to recycle the equity in the firm to the next generation of leaders. For example, when I joined the firm in 1984, I was able to mortgage my house and buy 25% of the company. At that point, we had a couple of hundred million under management. But when you have about $3 billion under management, as Harris Bretall does, that type of thing (buying into the company) is beyond the capabilities of most individuals."
The purchase of a 75% stake in the firm by Value Asset Management, Westport, Conn., closed on Nov. 12; price was not disclosed.
Mr. Smith said he and his partners hope the sale will "broaden the ownership of the organization, and firms like Value Asset provide the capital to allow you to do that."
He characterized bringing in Sue Foley, Gordon Ceressino and David Post, all active members of his firm's investment team, as a "huge strategic goal" for himself and his partner, Jack Sullivan.
"We felt it was important to preserve that same partnership opportunity that was offered to me back in 1984," Mr. Smith said.
Broadening the firm's ownership was a "novel concept" among the potential buyers with which his firm held discussions, said Mr. Smith.
"Most of them were used to owners who wanted to get the money and run," he explained.
"We said 'No, we're not running, we just need more capital to spread the ownership.' "
The firm's day-to-day business will be unaffected; while Harris Bretall has a seat on VAM's board of directors, the larger company doesn't have a seat on Harris' board.
Another factor in choosing Value Asset was its president, David Minella, said Mr. Smith. He noted Mr. Minella is a "pretty serious figure who ran GT Global" and his vision is to create something at the holding company level that adds value to its affiliates beyond the "administrative sense, such as accountants and lawyers, but rather in the asset gathering and distribution sense."
Mr. Minella brings with him a background in the mutual fund distribution area, whereas Harris Bretall's strengths are more with brokers and institutions.
"Hopefully, David will help develop a multi-channel distribution network that all money managers today need in order to survive," said Mr. Smith. "Money managers don't need accounting firms or lawyers, all they really need is distribution. So far, none of the other asset management consolidating firms are able to do that.
"David's commitment to doing something a little different was certainly a factor in our choice of VAM."
Mr. Smith also welcomed the fact VAM is a "relatively new organization;" that, he said, opens the door for Harris Bretall to help in the development of the company.
Harris Bretall is an active equity and fixed-income manager.
As to how his firm is faring following the Oct. 27 stock market correction, Mr. Smith said virtually all of his client portfolios are ahead of where they stood Sept. 30. "I think the market's been more active in the headlines than elsewhere, at least for our clients," he said. But over the long run, Mr. Smith remains convinced of the superiority of large-capitalization favorites; globalization favors such stocks over small-cap startups, he said.
Mr. Smith also has a decidedly bullish attitude about the future. "In general terms, our equity accounts are up more than 30% year to date, and that's slightly above where the market is. But there have been some tumultuous days, and I don't think we've yet become psychologically accustomed to that level of volatility. I believe that to this point it's had more impact psychologically than on our clients' portfolios."
Mr. Smith added he doesn't accept the "knee-jerk reaction of many experts to the Asian contagion." He said doomsayers made similar comments following the 1987 market crash, and the economy remained very strong into 1988 and 1989.
"We all expected very dramatic selloffs after the correction in 1987," he explained. "My expectation is that things will be much better, in terms of earnings and the economy, than some pessimists fear. We certainly haven't adjusted our portfolio in any way to a more defensive posture.
"Even if there is slight slowdown in GDP, it will be a positive for the market. Once this churning gets done with, I think it will be a really good buying opportunity -- it certainly was in 1987."