As a young employee of a venture capital firm, Don Douglass, MBA '59, learned that when properly managed, even the most unexciting business can produce returns. So in the late 1960s, after a great deal of research, Douglass became interested in a Texas firm that manufactured tractor-mounted mowers used by farmers and highway departments. The purchase price for Engler Manufacturing was $2.1 million, including $30,000 from Houston money manager Fayez Sarofim. Today, the Alamo Group is one of the world's biggest manufacturers of highway mowing equipment and replacement parts. In 1995, the firm earned $12 million on sales of $164 million. Forbes estimates that Sarofim's initial investment is now worth $2.3 million. Sarofim says he didn't know anything about mowing grass when he invested, but he liked Douglass. "It just shows you that betting on people is the most important thing," says Sarofim.
Last year, Van Brady, MBA '54, who is money manager at Presidio Management in San Francisco, was asked by Forbes to pick a favorite stock for the coming year. His selection, FPA Medical Management, rose 242 percent, making him the winner of the magazine's annual contest among 12 analysts. His selections have now beaten the market for eight years running.
As the bull market charged on in late 1996, Business Week worried that closed-end equity funds didn't rise as fast as their holdings. These funds, which invest like other mutual funds but are bought and sold like stocks, are selling at discounts. At last, says the magazine, fund managers are starting to concentrate on reducing these discounts. "In past years, all the fund executives talked about was how to do rights offerings," entitling them to buy newly issued shares, usually at a discount, said John Tobey, MBA '73, president of Investment Directions Inc., a consulting firm. At a recent industry conference, Tobey said, things were looking up. "They were talking about how to narrow the discounts."
A decade ago, Richard Fairbank, MBA '81, and his fellow consultant Nigel Morris decided that the most valuable product credit card firms had was the information they collected about cardholders. The pair outlined their idea to 25 banks before Signet Banking Corp. went for it in 1988. In November 1994, Signet spun off the business as Capital One Financial Corp., with Fairbank as CEO and Morris as president. Today one of the nation's top 10 card issuers, the firm offers 3,000 combinations of rates and customized features, Business Week reports.
The old adage "location, location, location" seems to be holding true for Silicon Valley's venture capital Miracle Mile that stretches along Sand Hill Road in Menlo Park. The roughly 40 venture capital firms in the area make it one of the most prestigious business addresses in the country. "We surveyed a number of entrepreneurs," Andrew Rachleff, MBA '84 and founding partner of Benchmark Capital Partners, told the San Jose Mercury News. "We were surprised to find the vast majority believed that a Sand Hill Roadbased VC was more of a credible venture capitalist." Craig Taylor, MBA '77, a partner at Asset Management, disagrees. His firm is located in Palo Alto near Highway 101 because that's where Asset's clients are. The location also gives Taylor's firm a certain amount of privacy. "If you're the vice president of a company looking for financing, you don't have to worry that 12 other venture capitalists are going to see you getting out of your car," said Taylor.
Larry Yung is the man to know in Hong Kong today, according to Fortune -- and Payson Cha, Sloan '73 and managing director of HKR International, agrees. Yung, the chairman of Citic Pacific, a publicly traded Hong Kong company, has great connections in mainland China. He is the eldest son of the vice president of the People's Republic. The consensus seems to be that he's also smart. "He's a delightful partner," says Cha. "Citic Pacific doesn't operate like a behemoth is behind it, but more like a private company." Cha's firm sold Yung half of the Hong Kong housing complex Discovery Bay for $441 million.
Northern Trust Co. is one of the nation's most profitable banks, posting
a return on assets of 18.4 percent for the first half of 1996. Forbes
credits part of this success to the bank's focus on providing investment
services to retirement plans through its master trust operation run by
Executive Vice President Sheila Penrose, SEP '84. "Master trust is a
term that makes people's eyes glaze over," said Penrose, "but tell
people that it means taking care of their retirement assets and they pay
attention." Penrose's operation now manages $616 billion and generates
over $300 million in fees per year.
As Forbes sees it, firms headed by two Business School alumni are leading contenders in the race to become the world's dominant mass marketer of financial services. Merrill Lynch, headed by president Herbert Allison, MBA '71, has $830 billion in client accounts and ranks "number one or two in nearly every brokerage function from global debt and equity underwriting to mergers and acquisitions and trading." A stiff competitor for global leadership is the firm headed by Charles Schwab, MBA '61. The Schwab firm, which manages assets of $253 billion, is fighting for market share by offering more of the types of advice and guidance services that are Merrill's stock in trade.
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