chultz: Senior vice president, Pine Grove Associates Inc., Summit, N.J.
I had . . . a whole string of assignments at New York Telephone. But the watershed time for me was 1973 . . . What happened was the pension fund assets grew and just topped the billion-dollar mark. The fellow in the job, Bill Landgraf, had run the pension fund for many years by himself. Bill was used to this being his personal fiefdom. But senior management, when the fund got over $1 billion, started to notice, and they started to ask Bill questions. Bill sort of resented that, people meddling in his business, and he had some 35 or 40 years with the company, so he gave two weeks' notice and retired.
And the charge from my boss, Larry Smart, was "Bob, we're going to put you over in the pension fund to try to find out what the hell he was doing over there. And don't worry, I'll get you out of there."
Bill Landgraf, the day I walked in to be briefed by him on his retirement date, had his coat on, his hat, which he wore on most days, and was sitting at his desk, which was totally clean, and I walked in and sat down.
Bill said: "I have one important thing to share with you." And he looked at this window casement that had a couple of boards in it, and he said:
"Whatever you do, don't ever take those boards out of the window." And he left.
Bill gave me good advice, though it didn't help me run the pension funds, because those boards were holding in a window air conditioning unit that otherwise would have gone out the window. That was my introduction to the pension fund.
The first major thing I did at New York Telephone was to introduce the index fund concept. We dealt with Rex Sinquefield and Hal Arbit, who both were at American National Bank . . . I can recall making a proposal to the investment committee on an easel flip chart that we should put a reasonably significant amount of our equity assets in this American National S&P index fund.
All of the committee members turned to Gus Levy (chairman of Goldman, Sachs), and one said, "Gus, we don't know anything about this. It's your call. What do we do?"
Gus Levy tipped his chair back. He took about 10 puffs on one of those very smelly, funny-looking cigars. I forget what you call them. And he tipped his chair back down and said: "It's a good move. We ought to do it."
Now to his credit, Gus Levy was thinking way ahead of his time, because if index funds became the norm, Goldman, Sachs would do a lot less trading activity down on the floor. What Gus Levy did was go back to his office with the idea: "Well, I'll just make Goldman the premier trader for index funds." Which he did.
Now at about the same time, a fellow named Andy Yost ran the Studebaker Worthington pension fund. Andy, to his credit, also thought index funds were a good idea and had $15 million in an index fund with American National shortly after New York Tel set up its separate account. The chairman (of Studebaker Worthington) found out that Andy had this index fund and in no uncertain terms told him: "Get rid of it. It's un-American. You're accepting mediocrity, and I won't have that in our company."
So we bought Andy's index fund.
At the time we interviewed (index fund managers), Batterymarch, American National and Wells Fargo were the only three index funds in existence, and I had not yet met Dean LeBaron (founder of Batterymarch Financial Management). I was at an Institutional Investor conference, and when we broke for lunch I went up to the person I thought was Dean LeBaron and said: "Dean . . ." I was starting to introduce myself.
Dean, in his usual prankster mentality, said: "Oh, I'm not Dean LeBaron, this is Dean LeBaron," and introduced me to the person standing next to him, who was an insurance agent, and walked off. The fellow, when I started talking to him, said, "Well, I'm not really Dean LeBaron, that was Dean LeBaron."
I told Dean, after the fact, that I was there to meet him to, maybe, give him one of his first index clients, and he introduces me to the guy next to him and walks away.