After 20 years as a principal of InterSec Research Corp., Stamford, Conn., Malcolm Mitchell has left the firm to start his own institutional investment management company.
Mr. Mitchell's duties at InterSec will be divided among existing staff members.
The new firm, still unnamed, will open its doors early in 1995 and offer both asset allocation advisory and asset management services to institutional investors seeking to diversify in global markets. Mr. Mitchell says the company's initial offering will be a balanced global fund aimed at institutional investors.
The fund will diversify among markets and among equity and fixed income, he added. Mr. Mitchell said he is talking to other managers, but it is too soon to disclose any details of who might be joining the firm.
The firm probably will be based in the New York area, with offices in Europe, Asia and possibly Australia, said Mr. Mitchell. He added the SEC registration statement will be filed later this year.
The commingled fund will be managed by a team of four or five portfolio managers who will make decisions as a committee, said Mr. Mitchell. They will do their own research and augment it by acquiring research from outside vendors. Groups of clients will be invited to attend the quarterly committee meetings and observe the decision-making process, said Mr. Mitchell.
He said the fund should appeal to the growth segment of pension plans in the $1 billion to $5 billion asset range that can't afford to place hundreds of millions under management in separate accounts and need a product more focused to their size.
Since the United States currently accounts for approximately 40% of the world's market capitalization, institutional investors of all sizes will have to continue increasing their allocation to international investments, he said. At the same time, improvements in custody, trading, settlement, disclosure and communications are making international markets more accessible, so institutional investors can't afford to think in strictly domestic terms anymore, he said.
"That whole business is in its infancy, but in five years it will be big," he said.
The proof that this approach can add value is in an InterSec program known as StratPerf.
StratPerf, begun in January 1993, tracks live paper portfolios of a universe of 22 managers. The managers include State Street Global Advisors, First Quadrant and CS First Boston Investment Management. The managers created balanced portfolios and were able to adjust their asset allocations among 22 markets in the Morgan Stanley Capital International World Equity index and 13 in the J.P. Morgan Global Bond Index. After the first 18 months, more than half the managers had outperformed the benchmarks, he said.
"The idea was in my mind when I started the program," said Mr. Mitchell. "What I'm adding is this idea of combining the management with advice so the client can bring its own approach to the global allocation question."
The emphasis on advisory services along with money management will set the firm apart, said Mr. Mitchell. Despite an industry trend to minimize the importance of performance analysis, such analysis has an important role in explaining the manager's handling of the investment process to the sponsor, he said.
"The two cannot exist independently in my view," he said. "My catch phrase is: 'Advice without management is untested, and management without advice is undisciplined.'"