MFS Chairman and Chief Executive Officer Jeffrey Shames breathed new life into the firm that says it invented the mutual fund. He became chief equity officer at 32, president at 38 and chairman and CEO in 1998 at the age of 43. MFS has become one of the 10 largest mutual fund firms and is looking to break into the upper echelon of institutional managers.
P&I: What was the situation at MFS when you joined the firm in 1983?
Mr. Shames: In the first couple years, there was just a handful of us younger MBAs. We were the activity center. We used to go out a couple of nights a week together. We didn't sit around and talk about what we'd do differently at MFS, we just talked more about the investment side. In that sense, we challenged the traditional way of doing things at MFS.
Our performance was mediocre. The head of the company recognized that what they needed was new blood. Usually at MFS you were an analyst for five to seven years before you became a portfolio manager. They moved me up in two years.
Unfortunately, the president of the company, who was engineering this youth movement, (was) diagnosed with cancer and passed away in 1987. During his illness they decided to make me head of equities. I was 32. Most of the other portfolio managers were 20 years older. I never managed anybody in my life. I didn't know what I didn't know.
P&I: When you were named president of the firm in 1993, what changes did you make?
Mr. Shames: On the investment side, every portfolio manager had to be expert in his/her top 20 holdings. Portfolio managers didn't sit in their office and have analysts come to them pitching ideas. They had to be out with the analysts.
P&I: MFS has been cited for having a good work environment. How does that translate into success in building assets?
Mr. Shames: The goal is to have great performance. We think one of the ways to get there is to have a great culture, a great environment that's collaborative and that leads to good performance. We channel what is a great culture in how we treat people and how we give people chances. In return, we expect excellence. We expect you to do extra for the customer. We expect you to uncover that stock that other people haven't found.
P&I: Since you became CEO in 1998, MFS has been one of the fastest growing mutual fund companies. What was your strategy and how do you go about being a major player on the institutional side?
Mr. Shames: Investment performance. I think in this business money follows long-term consistent investment performance. By 1998 we had developed good solid performance year in and year out for 10 years on the mutual fund side.
On the institutional side, we really only started in 1994.
Last year was a breakout year for us, and we're exploding on the institutional side at this point. I think we really had to deliver performance and had to convince the consultant community that we were going to invest heavily in the business and become a major player.
Right now, we're breaking into the top tier. We're being recommended by most of the top consultants for their biggest customers. Now that we're in the finals and winning them, we have got to have several years of good solid performance and that will catapult us.
P&I: Do you have any plans to increase assets through acquisition?
Mr. Shames: We build businesses ourselves. We find it works better for us. We're growing so fast in almost every area that we don't want to take our resources away from growing our business to try and merge something. We don't want people to take their eye off their own business by merging departments and worrying about who's going to work for whom. We've been growing revenues at 35% a year and earnings at 40% a year over the last six years.
P&I: While performance has been strong, MFS doesn't have the same name recognition as some of the other large firms. How do you increase your exposure?
Mr. Shames: In our business, trying to create a brand name is fleeting because in the end, it's about your performance on the investment side. We just believe it will evolve as people view long-term investment performance as the key attribute and if we have it, we'll grow.
If it (lack of recognition) has had a negative impact, it's been on the 401(k) side. We've had CFOs say, "I love your product, but I have trouble picking you because our employees are going to say, `Who's that?' "
P&I: Your assets grew during a strong growth market. Are you concerned about continuing to compete if the market turns away from growth?
Mr. Shames: We think we're well prepared to grow our market share dramatically if the market turns toward the value area or the international area. We're already seeing that transition happen.
P&I: There's been talk about the firm going public. Is that something you see happening?
Mr. Shames: Sun Life, the parent, said in public statements that if they feel that MFS is not getting full value in their stock price, they would go public with MFS. It's something we talk about, but they have other things they want to accomplish so it's nothing imminent. But it's a topic we'll continue to talk about in the future.
P&I: You served in the Peace Corps teaching mathematics on the Fiji Islands. How do you go from the Peace Corp to managing money?
Mr. Shames: The Peace Corps was a blast. Every day you woke up incredibly excited to do your job. It was the first time I had experienced a job that was fun. Then I went into a government job after that and that was just the opposite. It was tedious; it couldn't be more boring.
After that, my goal was to find something that was as fun as the Peace Corps, and I found that being in the investment business is a blast.
JEFFREY SHAMES, chairman and chief executive officer of MFS Investment Management Inc., Boston.
ASSETS UNDER MANAGEMENT: $147 billion as of Dec. 31
RETURNS (for year ended Dec. 31, according to PIPER):
MFS balanced account, 19.4%
MFS large-cap value account, 23.9%
MFS conservative core fixed-income account, 12.7%
MFS research portfolio, 9.7%
MFS midcap growth equity portfolio, 9.7%