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The Investment People of Batterymarch “A Glimmer of the Investment Future from a
Reflection of Its Past” Remarks at
the January 10, 2007 meeting of the [ click
here for photo index ] I have had an incredible experience working with
the most intelligent, motivated people upon whose shoulders I have
stood: Jeremy Grantham, Richard Vancil, my father Francis and son Blake,
Alan Strassman, Dick Mayo, Steve Swensrud, King Durant, Evan Schulman,
David Gill, Alexis Belash, Paul Rugo, Charley Ellis, Bob Monks, Jim
Gipson and, of course, my colleague now, Marilyn Pitchford. And Arnie
Wood who was kind enough and brave enough to introduce me … I would
like to meet the wonderful guy he described. And experiences: Ling taught me about cash; Vancil
about investment skills; Grantham about stock selection (funny names);
Moseley about research investment ties; a printing company about
non-consolidated subsidiaries. As a youth I had an appetite for the novel.
Anything that worked could be made to work better ... usually with
machines. In today’s diagnosis, I would have had attention deficit
disorder and been put on medication never to bother anyone again. I was
far more interested in how things and markets worked than making money
with them. And continue so today. As a student I was thrilled with the ability to
capture the world’s knowledge by having a stack card at Widener
Library and, as an undergraduate, having a study carrel. I could follow
a thread of the world’s questions and answers from one level to
another. Today I can do the same thing on a computer ... a computerized
literary dilettante. Our goal in starting Batterymarch was to bring
academe to investments. As one friend remarked when I offered to
introduce him to Prof. Colyer Crum, then teaching Mrs. Heald and
investment management at the Harvard Business School: “I’ll meet him
when his portfolio is bigger than mine.” That suggested there was an
opening to applying investment insights from academics to the real world
at a research cost of the price of a subscription to the Journal
of Finance. [About Mrs. Heald: All the cases for the semester
were investment problems related to a client of the student, Mrs. Heald.
She had problems that arose which the student had to solve … like some
family member needed cash. Of course, she was fictional but seemed
awfully real to the students who were sweating over her problems.] And I have had the highs and lows of spectacular
results and horrid ones. Pretty much what one would expect from a low
correlation portfolio. It is not surprising that I was an enthusiastic
member of the CFA group that laid out principles for full disclosure of
returns. And our passion at Batterymarch for transparency led to
publishing all our business data and even running training programs for
clients—and even competitors—on how to do what we did. Thanks, Arnie
Wood. There was even a rumor running around that Stan Calderwood had a
mole inside Batterymarch so he could learn all our secrets. True ... I
was the mole. Only a little later, under John Shad, I chaired an SEC advisory committee on governance. The committee included Arthur Goldberg, Bob Rubin, Bob Greenhill, Bruce Wasserstein, and others of the same ilk ... I was chairman only because I was the only one who did not want the job. I came to believe that transparency, even if forced, would solve most regulatory problems. And also that never, never would I have the patience for a job in the federal government. One can never say who started what in the
investment area. We (in this room) are stitched together so closely
there is nothing that is really proprietary. But we were associated in
the early days of indexing, quant models, low-cost basket trading,
internal computerization, brutally low trading costs, emerging markets,
and investing in developed markets. Fortunately, friends forget our
efforts to make farm land an asset class (similar argument as timber but
with higher costs and subsidies but more liquidity); a Russian fund
under the sponsorship of the former Soviet government (right idea, wrong
government); a suggested outline to rent proxies; efforts to integrate
physics/complexity into investment decisions (one of the reasons for
publishing Complexity Digest but yet to be accomplished
although several are making a promising effort). Now that I’m trapped by the enticements of the
web for everything and still experimenting, my plea to you is to finish
jobs that I started ... but which are yet to be completed. 1. Reconcile investment management as a business
and as a profession. As Justice Brandeis commented: “A profession has
intellectual content; serves others not oneself; and financial rewards
are not the measure of success.” Admittedly, there is a cycle:
business when there is a bull market where returns are huge; numbers of
HBS students; salaries, bull market ... 18-year or 64-year. Profession
... do things that are in the client’s interest but damage the agent. 2. Soft dollars: we all agree this is a
non-efficiency that deserves to be cleaned up although we all have our
hands in the cookie jar now. 3. Fewer investment people and lower cost. Jack
Bogle and I share this 25 year-old forecast with the tolerance of good
friends who do not remind us (while they stand in long lines for
year-end bonuses). In most fields, control is moving to the ultimate
consumer away from the provider. In investments we have more levels of
agents, partly to share responsibility that is largely chance in the
occupational terms we use to measure; hence we use layers of consultants
and high costs as occupational insurance without knowing what
“coverage” we are getting for the premiums. I thought that transparency would bring rationality
and separate agent marketing considerations from investment
return-related decision structures. I’m wrong ... at least wrong to
date. My plea to you is to pick up the cudgel ... while I return to
YouTube. Dean LeBaron |
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