Westside Firm Targeting New Fields With Al Gore Hire

Staff Reporter

Flying below the radar while accumulating a management portfolio of more than $50 billion is no easy feat. But West L.A.-based Metropolitan West Financial Inc. managed to do it pretty well until last week, when it named former Vice President Al Gore to be its vice chairman.

By hiring Gore, MetWest is coming out of its shell in a big way. The firm, while well known inside institutional financial circles, has been nearly invisible outside of them.

"To the extent that I want privacy, I'm not going to have more from this," said MetWest Chairman/Chief Executive Richard S. Hollander.

Hollander and his partners have concluded that a higher public profile will help them to pull off MetWest's growth initiative expanding into overseas markets and into high-growth areas such as biotech and information technologies.

Hollander, a former bond salesman at defunct Drexel Burnham Lambert, founded MetWest in 1992 by buying the $2 billion securities-lending operation of Bank of America.

Four years later, he convinced two key money managers from L.A.-based Hotchkis & Wiley, which at the time was in the process of being acquired by Merrill Lynch, to join him at MetWest. Several institutional clients representing more than $600 million in assets followed them.

From there, the firm's assets under management have quadrupled since 1996, to $51.2 billion as of Oct. 31.

Internal growth

About 75 percent of that growth has been achieved internally, rather than through acquisitions, Hollander said. By hiring key talent with solid connections, the firm has attracted institutional clients like Microsoft Corp., AMR Investments and Calpers.

Now, to support a new round of growth in the international, biotech and information technology areas, Hollander has brought on a rainmaker in Gore, who will get the firm instant credibility among participants in those worlds. (Gore doesn't hurt MetWest's ongoing efforts to attract business from government pension funds, either.)

Gore's hire is in line with MetWest's strategy of hiring based on good connections and expertise in a particular industry or practice area.

Besides Gore and the Hotchkis money managers, Hollander has brought on board a number of potent players. They include former California Treasurer Thomas Hayes, who gained prominence by overseeing the Orange County bailout; Patrick Mitchell, former chief investment officer for the California State Teachers' Retirement System; and Lawrence Post, who merged his Westside junk bond shop, Post Advisory Group, into MetWest late last year.

One appeal of MetWest has been its semi-autonomous holding structure. Rather than being comprised of wholly owned operating units, MetWest is a collection of affiliate companies, each with separate ownership. Each operation is substantially owned by its top operating executives.

As he sees it, Hollander's role is to support these affiliates and to identify areas for the firm's future growth. Those who know him say Hollander is an entrepreneur at heart, and could be building a newspaper chain or an automobile company as easily as a money-management firm.

MetWest's original securities-lending business, MetWest Securities, now controls $32 billion in assets. This business essentially involves lending stocks that are held in client accounts to short sellers. Institutional clients who are long-term holders of a stock are able to goose returns by charging interest on the stock loans, and MetWest collects a fee. It sounds risky, but the loans are well collateralized.

Institutional clients

MetWest Asset Management, the fixed-income arm, has grown to $17 billion, while a large-cap value-oriented equities affiliate, MetWest Capital Management, has $2 billion in assets.

MW Post Advisory Group, a manager of high-yield and distressed securities, and MW Pritchard, Hubble & Herr, an investment adviser to retired airline pilots, each have less than $1 billion in assets.

MetWest also has a consulting group that provides financial advice to private corporations, higher-education institutions and state and local governments.

While Hollander stresses that most of this growth has been organic, it's clearly a steroid-infused version of organic.

AMR Investments, the AMR Corp. subsidiary that manages the airline holding company's cash and pension accounts, as well as accounts for outside investors totaling $32 billion altogether illustrates a typical MetWest-style customer acquisition.

AMR was using another firm to lend securities in its portfolio, when the people who were doing the work affiliated themselves with MetWest, said Bill Quinn, president of AMR Investments. "We stayed with the people and got to know the rest of the MetWest organization. We liked what we saw and started using more of their capabilities."

Earlier this year, AMR Investments assisted MetWest in acquiring Pritchard, Hubble & and Herr the pilots' wealth management operation and now co-markets it with MetWest, Quinn said.

AMR Investments also hired MetWest to manage the high-yield bonds in its mutual funds, and uses MetWest Capital Management for picking large-cap value stocks. "What we like are firms that have diverse capabilities and talents where we can have one relationship rather than five or six different relationships," Quinn said.

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