Frank Russell Company

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Frank Russell Company

909 A Street
Tacoma, Washington 98402
U.S.A.
Telephone: (253) 572-9500
Fax: (253) 591-3495
Web site: http://www.russell.com

Wholly Owned Subsidiary of Northwestern Mutual Life Insurance Co.
Incorporated: 1936
Employees: 1,300
Sales: $500 million (est.)
NAIC: 52392 Portfolio Management; 52393 Investment Advice; 52312 Securities Brokerage; 52311 Investment Banking and Securities; 52511 Pension Funds

The Frank Russell Company is an investment services firm that advises more than 1,000 money management clients in 35 countries who oversee $1 trillion in assets. The company also manages mutual funds, retirement plans, and other accounts worth more than $66 billion, and compiles the well-known Russell 1000, 2000, and 3000 stock indexes. Russell’s clients include numerous major corporations such as AT&T, General Motors, and Compaq, and the firm also has marketing alliances with many international financial service organizations such as A.G. Edwards, Crédit du Nord, Société Générale, and the Bank of Tokyo Mitsubishi. A subsidiary of Northwestern Mutual since 1999, Russell is headquartered in Tacoma, Washington and has offices in New York, London, Paris, Tokyo, Toronto, Sydney, Australia, Auckland, New Zealand, and Singapore.

Early Years

The Frank Russell Company was founded in 1936 by a Merrill Lynch stockbroker who had retired from Wall Street and moved to Tacoma, Washington, where his son was a newspaper executive. Looking to keep busy, he began to offer investment counseling services and started a mutual fund. His small business served local investors for the next two decades, and in 1958 his grandson George joined the firm. After only three months on the job the younger Russell, a Harvard business school graduate, was left in charge when his grandfather passed away. At this time the firm, with a staff of just two, had assets of only $300,000 and 176 investors in its mutual fund, many of them friends of Frank Russell.

George Russell quickly began to take a more aggressive approach toward growing the business, and added sales representatives and other activities such as life insurance sales and real estate syndication. By 1965, there were 300 salesmen working for the firm, but Russell was still not entirely satisfied, believing that the company did nothing that distinguished it from others of its type. In 1968, he began to take a look at pension fund accounts, which at the time were typically managed by a single individual, often someone chosen for political reasons. Russell took a set of formulas developed by researcher Peter Dietz (whom he later hired) to examine the performance of different pension funds and determined that he could improve their results. He decided to take his new idea of “management of managers” to large companies by making cold calls to their treasurers. The first to sign on was J.C. Penney, and Russell soon attracted more clients, with the list eventually coming to include AT&T, General Motors, and IBM. The firm chose to limit its clients to a total of 40.

Soon after it began offering its advising service, the company opened a New York office. Russell also created two other new businesses that performed related tasks, one offering data on manager performance and the other performing securities trades for institutional investors. These later became known as Russell Analytical Services and Frank Russell Securities, respectively. In 1979 the company expanded overseas when an office was opened in London. The next year, two investment management subsidiaries were created in response to customer requests for Russell-managed funds. Expanding its presence in the pension fund consulting field, the company also began to reach out to small and medium-sized retirement plans and individual investors.

The Russell 1000, 2000, and 3000

In 1982 the firm created several indexes of stocks as a way to gauge money managers’ success against the growth of the market as a whole. The lists—composed of the 1,000 largest stocks (known as the Russell 1000, equal to about 90 percent of the market); the next 2,000 in size (the Russell 2000); and a combination of the two (the Russell 3000, covering 98 percent of the market)—were made public several years later and were quickly accepted by investors as useful tools. The indexes began to appear regularly in investment publications such as The Wall Street Journal, Barron’s, and Business Week.

In 1986, the steadily growing company opened offices in Tokyo and Sydney. By 1988, Russell had 700 employees and annual revenues of approximately $100 million. The firm was then advising clients on investments totaling $240 billion. Russell’s customer list included many major U.S. corporations as well as prominent foreign ones like Rolls Royce in England and the largest banks of Japan and Australia. 1988 also saw the company move into a new 12-story headquarters on the Tacoma waterfront.

In 1990 George Russell named the company’s director of international consulting, Michael Phillips, to the post of president, remaining in place as chairman and CEO. He also created the Russell 20–20, which was assembled soon after the fall of the Berlin Wall. The 20–20 was a group of 20 major pension fund managers and 20 leading money managers that Russell personally led on trips to Eastern Europe and China, where they assessed the investment climate in those emerging markets. He was a strong advocate of seizing such opportunities, and doubled his 1970s-era recommendation of 10 percent foreign investment to 20. Two years later Michael Phillips took on the additional title of CEO. By 1993, the firm’s clients were managing assets worth $450 billion, nearly double the amount of 5 years before.

The company was also offering other investment indexes by this time, such as the Timberlands Index, which was offered beginning in 1994 in association with the National Council of Real Estate Investment Fiduciaries. The index measured the returns on 75 percent of institutional investors’ timberlands holdings in the U.S. Other real estate indexes were compiled that covered farmlands and commercial property.

In the early 1990s, a proposal was made in the Washington State legislature to place a sales tax on financial services transactions. Russell fought it, threatening to leave the state if the law was passed, and changes were eventually made that mollified the company. Other tax proposals which affected Russell continued to appear from time to time, but the firm’s importance to the state, and particularly to the city of Tacoma, enabled it to garner favorable treatment from legislators.

Treating Employees Right

The fact that a leading investment services firm could succeed located so far from the financial hub of New York was sometimes a surprise to people. George Russell was a strong believer that his company’s employees should have a life beyond their jobs, however, and he felt that the stress of working on Wall Street precluded having a happy family life. He told the Seattle Times, “If you get the priorities in the right place to begin with as you run a business, and you put the people ahead of the business, then they’ll eventually realize they can have fun in life, too, and the business will be fun.” The company had a reputation for generosity toward its employees and was recognized by a number of different organizations for its pleasant work environment. In addition to their other benefits, in 1995 Russell began to offer a paid eight-week sabbatical leave to every employee with ten years or more of service. The company also contributed 15 percent of its employees’ salaries to a profit-sharing plan.

In 1995, Russell decided to launch its first national promotional campaign, hiring Team One Advertising to handle the estimated $5 million account. The move reflected the company’s growing interest in broadening its client base to include more individual investors. Introduced the following summer, the ads ran in the Wall Street Journal and various other publications targeted at retirees and institutions. Slogans included “Russell Knows” and “Knowledge Is Money.”

In December of 1996, George Russell made his entire workforce of 1,200 part owners of the company when he announced that 5 percent of its total equity value would be transferred to them. Ownership shares were apportioned based on longevity and pay level. Over the next several years this percentage grew to 40 percent, with Russell and his wife Jane retaining the remainder. The growing company had by this time leased additional space to house its staff, the headquarters building having reached its capacity of 950.

In 1998, Russell and Mellon Trust combined forces to create Russell/Mellon Analytical Services Inc. The jointly-owned company, which was to employ 410 (280 coming from the former Russell Analytical Services), would continue to issue the Russell stock indexes, while also offering some of Mellon’s investment services and taking advantage of the latter company’s huge computer processing capabilities. Soon after this, an alliance was made with Société Générale Asset Management of France to offer multi-manager funds in Europe.

Company Perspectives:

Russell’s multi-manager solutions offer investors a smarter choice in professional money management. The result is a tailored investment program aimed at building and preserving wealth for the long term. After more than six decades of serving investors’ needs, Russell has developed a 360-degree perspective on investment managers and capital markets. Russell and its affiliates have developed the combined art and science of multi-manager investing into an advanced process imitated by many but duplicated by none. The result is a comprehensive approach that delivers goal-oriented investment programs for clients ranging from billion-dollar institutions to small individual investors around the world. Russell’s competitive advantage is its continuous, in-depth money manager research and extensive knowledge of financial markets worldwide.

Sale to Northwestern Mutual

1998 was also the year that 66-year old George Russell began looking closely at the future of the Frank Russell Company. After consulting with Goldman, Sachs & Co. and considering the possibility of an IPO, he decided to sell the company to Northwestern Mutual Life Insurance in August for more than $1.2 billion. The Milwaukee-based Northwestern was the fourth-largest insurer in the U.S., with assets of more than $76 billion. The Frank Russell Co., growing annually since the mid-1970s at a rate of more than 20 percent, had itself reached $305 million in annual revenues by this time.

Following the sale, the company continued to be headquartered in Tacoma, and its management team remained intact. Northwestern Mutual insurance agents also began to offer Russell investment packages to their customers. Though the sale had been prompted in part by George Russell’s concern about the impact of high estate taxes on the firm and the other complications his death might cause, he was also looking for a powerful ally. He told the Tacoma News Tribune, “We are relatively small globally. The model we developed is beginning to get world attention. If we don’t get some muscle behind us, somebody will run over us.” Noting that Northwestern had not been the highest bidder for the firm, he stated, “The criteria Jane and I had were culture, independence, and support of the community.” The Russells, who were active fundraisers for such projects as the proposed $38.8 million Museum of Modern Glass on the Tacoma waterfront, planned to start a charitable foundation with some of their proceeds from the sale.

Overseas growth continued in 1999 when the company made new alliances with banks in Japan and Singapore to offer Russell investment funds in those countries. Several executives were promoted at this time to oversee the firm’s international strategy. 2000 also saw further developments abroad when an alliance was formed with FTSE International Ltd. of London to jointly market both firm’s products, including their stock indexes. Another agreement was reached during the year with South Africa-based Investment Solutions to distribute Russell funds in that country.

The much-debated proposal to allow Americans to invest their Social Security accounts in the stock market led Russell executives to help form the Coalition for American Financial Security to examine this option. Though it was accused by some of being motivated by greed, a coalition spokesperson declared that it was primarily engaged in fact finding and opinion polling to help gauge public sentiment about the matter. Russell also continued inking foreign alliances, partnering during 2001 with BMW Group’s banking arm to sell money management programs to investors in Germany.

With its long history and sterling reputation, the Frank Russell Co. remained one of the foremost money management names in the United States. The deep pockets of Northwestern Mutual and the company’s growing focus on international expansion made continued growth a good bet for some time to come.

Principal Subsidiaries

Russell Investment Group; Frank Russell Investment Management Co.; Frank Russell Insurance Fund; Frank Russell Canada, Ltd.; Russell/Mellon Analytical Services, Inc. (50%) SG/Russell Asset Management (France; 50%)

Principal Competitors

SEI Investments Co.; Merrill Lynch & Co., Inc.; Morgan Stanley Dean Whitter & Co.; The Goldman Sachs Group, Inc.

Key Dates:

1936:: Frank Russell founds a small investment firm in Tacoma, Washington.
1958:: Grandson George Russell takes over business upon Frank Russell’s death.
1969:: The company’s strategy of rating money managers is introduced, and a New York office opened.
1979:: First foreign office opens in London.
1980:: Russell begins offering managed funds to investors.
1982:: Russell 1000, 2000, and 3000 stock indexes are created.
1986:: Russell opens offices in Tokyo, Japan, and Sydney, Australia.
1988:: Company moves into its new 12-story Tacoma headquarters.
1990:: Russell 20–20 group founded to explore emerging markets.
1996:: George Russell begins sharing company’s ownership with his employees.
1997:: Consulting business surpasses $1 trillion in managed assets.
1999:: Russell is sold to Northwestern Mutual for $1.2 billion.