BOSTON - Better known for more than 75 years as a retail mutual fund manager, Boston's MFS Investment Management has transformed itself into one of the country's fastest growing institutional managers.
The company's institutional arm, MFS Institutional Advisors Inc., will end the year with at least 50 new institutional clients and more than $2 billion in new assets. Total institutional client assets at MFS were $19.7 billion as of Oct. 31 this year, or 16.9% of the company's $116.4 billion total.
That's a remarkable leap, considering MFS won its first institutional client in the early 1970s with a fixed-income mandate and didn't have more than a couple billion dollars from plan sponsors for more than 20 years. In fact, MFS Institutional began in 1993 with just $3 billion in institutional assets or just 8.7% of total assets. And while Financial Research Corp., Boston, ranked MFS 11th with $76 billion in long-term U.S. mutual fund assets at the end of the second quarter, its prowess as a pension fund manager only recently has been discovered by sponsors and their consultants.
New MFS clients are as diverse as the South Carolina Retirement System, which invested in equities for the first time this year and gave MFS a $50 million midcap growth mandate, and Cornell University, which hired MFS to manage $25 million in midcap growth stocks. Other 1999 wins include Foster Wheeler Corp., which hired MFS to manage $21 million in international equities, and Lifespan Corp. which handed over $12 million for midcap growth stock management.
In line with a general trend, these new clients are bigger and are handing MFS separate account mandates that are much larger than in previous years - between $40 million and $50 million.
MFS' board decided in 1993 to refocus its efforts in the pension fund marketplace and set a goal of making institutional assets 25% of total assets. Institutional assets as a percentage of total assets almost doubled between 1993 and 1997 to $11.3 billion or 16.2%.
"MFS went from being a specialty niche player with a few investment products to covering the full spectrum of asset classes, with 21 different strategies," said Joseph Trainor, president of MFS Institutional.
By emphasizing the company's pre-Depression era roots and concentrating on "original research, an investment process that delivers consistent, repeatable performance, and team work in investment management," Mr. Trainor said the company has changed the minds of consultants and sponsors who thought of MFS only as a retail mutual fund player.
As part of the institutionalization of the company, Mr. Trainor said not only has it emphasized consistency of investment process, but sustainability of staff also has been enhanced through a change in compensation systems. Portfolio managers are now compensated based both on quantitative performance measures and qualitative criteria that rate a manager's contribution to the team effort. The average tenure of the portfolio managers is 13 years.
Institutional sales people also are on a team-based compensation system that rewards employees as a group for bringing in new clients, regardless of what MFS asset class or vehicle the client ends up using.
And the institutional salespeople are only going to get tougher and smarter about team play, if they take to heart the teaching of Mr. Trainor's most recent reading assignment: "The Art of War," written 25 centuries ago by Sun-Tzu. "The book is about knowing who you are and about executing plans to get to where you want to go," he said.