Gary P. Brinson could become the first trillion-dollar man in investment management. As the potential leader of a newly combined asset management organization, the first near $1 trillion in assets under management, Mr. Brinson will give institutional investors some serious issues to ponder.
First, his leadership is a vindication of active management. Second, his ambitious growth of the business -- through investment, new clients and business combinations -- is a testament to bigness in an investment world grown suspicious of it. Third, his pioneering approach to broad asset allocation, global investing and global marketing is remaking the world of asset management.
Mr. Brinson will lead the new huge global asset management businesses of the combined Union Bank of Switzerland and Swiss Bank Corp. Combined, the UBS and SBC companies have a reported $920 billion in portfolio assets. The latter owns Brinson Partners Inc., Chicago, where Mr. Brinson is chief investment officer and chief executive, and its global arm, SBC Brinson, Basel, where Mr. Brinson is CIO.
As the U.S. bull market draws more investors to indexing, Mr. Brinson has remained committed to active management. UBS and SBC hardly have any assets indexed. UBS Asset Management had a relatively tiny $6 billion indexed in the latest Pensions & Investments semiannual survey of indexing. SBC doesn't even appear in the survey of 57 managers.
In the investment industry, it has become an accepted precept that big firms can't manage active portfolios as effectively as small firms can. But big active management is respectable; it isn't a wrong-way chase of some performance mirage. Mr. Brinson has proved that by maintaining top-level performance at Brinson Partners as it grew from only $12 billion just after it broke away from First Chicago Investment Advisors in 1990.
The UBS-SBC union gives tacit endorsement to very large firms such as Fidelity Investments. Criticized for underperforming, Fidelity flirted with indexing but then subcontracted that management to Bankers Trust Co. to avoid contaminating with passive ideas its traditional active culture. UBS-SBC gives comfort to the management and clients of the Magellan fund, which Fidelity has kept active despite the financial strain of underperformance. Fidelity may be on the right track after all.
Indexing hasn't outperformed active management hands down. Indexing is fine for those committed to the efficient market theory or for those without the resources to search for top-performing managers. But passive investing has its limits. Those investing in the MSCI EAFE index saw the limits in the last decade with the heavy weighting of Japan dragging their portfolios down. Those with global emerging market indexes learned the limits with the crash in the Asian markets this autumn.
For all his acumen in business management in founding, enlarging and operating his money management organization, Mr. Brinson is firmly grounded in investment research. He pioneered asset allocation across a broad spectrum, domestically and globally, that investors now accept as the best practice to diversify risk while enhancing return. He co-wrote a seminal paper on the power of asset allocation and two books on global investment markets and returns.
With this gigantic complex, Mr. Brinson, now the biggest money manager of all, might reach his Peter Principle level of incompetence and the UBS-SBC combination might flop. But that is the risk of business.
