State Street Research Executive Reminisces
July 26, 1999
BOSTON - It was in 1943, at a time when one million shares traded on the New York Stock Exchange on the busiest of days and only a handful of firms sold mutual funds, that Paul Cabot, a founder of the open-end mutual fund industry, decided his firm needed a fourth analyst to support its six partners.
So, Cabot hired George F. Bennett to join State Street Research & Management in Boston. Bennett has been with the firm ever since, serving as an analyst, portfolio manager, president and now honorary chairman of the board overseeing the fund Bennett managed for 27 years, State Street Research Investment Trust. Although he retired in 1988, Bennett, 87, still goes to the office regularly to read, listen and catch up on industry news.
"It's a great business," Bennett said in his 30th floor office at State Street Research's headquarters in downtown Boston overlooking Boston harbor. "It's highly competitive...the people are great. It's a business built on personal confidence. All of those things I like."
State Street Research Thursday will mark the 75th anniversary of the $3 billion Investment Trust, America's second-oldest mutual fund. Only MFS Management's Massachusetts Investors Trust is older, having been formed in March 1924. Bennett, who describes himself as the last State Street Research executive with links to the firm's founders, last week reminisced about the industry's past and prospects.
Fifty years ago, the mutual fund industry resembled an informal club, Bennett said. Executives at competing firms knew one another personally, served on the same philanthropic boards and, in some instances invested in one another's funds. The network between State Street Research and cross-town rival MFS was particularly close, Bennett said. Executives at State Street Research and MFS alternated hosting lunches for the executives from the two firms, he said.
"There weren't that many people (at senior levels) that you couldn't know everybody," Bennett said.
The industry's collegiality provided an information network long before computers and the Internet. Fifty years ago, money managers frequently had to rely on a combination of guesswork and tips about how to invest because companies generally did not divulge details about their operations and finances, Bennett said. Fund companies used personal relationships to obtain data. Decisions about whether to invest in companies were more freewheeling and less systematic than they are today, Bennett said.
State Street Research helped change some of that, Bennett said. The firm's portfolio managers and analysts began pressuring companies to disclose more about their businesses, a practice largely unheard of in the 1940s, Bennett said.
The change in information flow is one of the big differences in the fund industry, Bennett said. The cascade of information that analysts and portfolio managers now receive increases the importance of analysis over information gathering, Bennett said. That abundance of data also has changed mutual fund hiring. Firms now must look for employees with the ability to sort through mountains of data without becoming paralyzed by indecision or focusing unduly on detail, Bennett said. Fact-finding used to be a higher priority.
"You've got to get what you think is essential and make the leap of faith because time will run out on you," Bennett said.
Another lesson Bennett has drawn from State Street Research's history arose from an error the firm made early on. Cabot and State Street Research's early partners disliked the marketing and sales efforts that began to be associated with the fund business in the mid-1940s, Bennett said. The firm trailed competitors in developing its retail fund business because of its reluctance to engage in the prevalent marketing practices, Bennett said. State Street Research was also reluctant to grow too large. Finally, it sold out to Metropolitan Life Insurance Co. of New York in 1983 in order to increase distribution of its funds through the Met Life sales force, Bennett said. But, even after the sale, the company should have moved more quickly to capitalize on the explosion in popularity of retail funds, he said.
"Our timing in getting back into mutual funds in a really big way was not good," Bennett said. "We've been playing catch up. We're going to catch up, but it's going to take time."
Bennett is skeptical of the valuations of Internet companies and predicts there will be a shakeout in the fund industry when the financial markets drop. Some firms will fold and others will merge, he said. Bennett also expressed concern that fund investors might redeem shares en masse if the equity markets do suffer a sustained drop.
Bennett sometimes offers his advice to four grandsons who now are in the mutual fund business. Two sons, Peter and Gerry, are also in the business.