Russell Funds

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Oct 29, 2008 4:04 pm

Anybody use Russell Funds?  Is their deal that they basically run fund-of-funds?  I looked at their recent returns, and was not too impressed.  Any thoughts? 

 
I am thinking of going after a foundation RFP that currently uses Russell.  They are going out to bid in a few months.
Oct 29, 2008 5:00 pm

Don't get me started on Russell.  Their "balanced" fund is killing me right now.  Ice is correct once again...amazing for someone who is a Bengals fan.  Their claim to fame is that they make sure their managers (PIMCO, GS, Fidelity, Marsico, etc.) stick to their discipline. 

 
They are very big in the foundation space.  In fact, the Bill and Melinda Gates foundation has/had $30 billion with Russell before this market suck fest.
 
Is there a reason the foundation is going out to bid?  Cost, performance?
Oct 29, 2008 5:07 pm

The only reason Bill and Melinda were with them is because Russell is in Seattle.  They were supporting their community.

Oct 29, 2008 5:33 pm

I only know this through a conversation I overheard. I was among some foundation members, and one asked how the investment returns have been. The response was that she was not sure of the recent returns (she was "not at the last meeting"), but "suffice to say that they are generally market returns". She then made the comment about "probably going out to RFP over the next few months". I looked on their website, and it appears that they use a very balanced approach, utilizing an internal IPC to make the investment mix decisions. None of the members appear to be particularly qualified to make those recommendations. Most are CPA's, lawyers, bankers, NFP board members, etc. A bunch of "smart guys" and volunteers. I think they basically sank with the ship.



Personally, I don't have a lot of experience with major foundations or endowments, but this one seems particularly aggressive based on their needs. It's close to $40mm (well, as of the last report I saw, which may have been last year). I won't get the bid (I don't think they would award it to an advisor - I think they will go direct to money managers through their internal IPC), but it might be a good experience to at least go through the process, and be forced to do some research in this area, and possibly pursue others in the future.

Oct 29, 2008 5:34 pm
iceco1d:

I use some of their tax-managed funds on occassion.



They aren't really a "fund of funds" - they consider themselves "manager of managers." They basically outsource the management of their funds to other fund managers. So within their Tax-Free Fund, they may have Oppenheimer, Putnam, and Goldman each running 33.33% of the portfolio. Or they may have Oppy & Putnam each running 25%, and Goldman running 50%.



It's my understanding that when they switch out a particular manager, they do it "in kind" - so the new manager only liquidates the securities they don't wish to continue holding.





That's sort of what I thought. I don't see any performance or risk advantage in what they have done.

Oct 29, 2008 6:59 pm
B24:

I I won't get the bid (I don't think they would award it to an advisor - I think they will go direct to money managers through their internal IPC), but it might be a good experience to at least go through the process, and be forced to do some research in this area, and possibly pursue others in the future.


I do some foundation and Not For Profit business and the term "IPC" is a new one to me.  What does that stand for?

Your description of the board members sounds typical, in my experience.  They usually recruit from a variety of professions, not many of which necessarily have much relevant experience with making investment decisions.  That is one of the reasons Russell is often pitched to these groups - the protection from fiduciary liability.  Russell is a big enough name to give the board members some comfort that they will do a decent job and - importantly - leave the board members with a bit less risk of personal liability if the investments blow up.  Much harder for anyone in the future to say they breached their fiduciary responsibilities if they adhere to a structured process and pick one of the largest. most recognized consultants and 'managers of managers' in the world.  After all, if someone like Russell can't select good managers, how can board volunteers with little relevant experience be expected to do any better?

If you get to the finals you'll need not just decent investment strategy recommendations, but something that address this fiduciary liability fear.  Don't expect that fear to be articulated, but know it is real and it is there.

Oct 29, 2008 7:01 pm
B24:
iceco1d:

I use some of their tax-managed funds on occassion. 

 

They aren't really a "fund of funds" - they consider themselves "manager of managers."  They basically outsource the management of their funds to other fund managers.  So within their Tax-Free Fund, they may have Oppenheimer, Putnam, and Goldman each running 33.33% of the portfolio.  Or they may have Oppy & Putnam each running 25%, and Goldman running 50%. 

 

It's my understanding that when they switch out a particular manager, they do it "in kind" - so the new manager only liquidates the securities they don't wish to continue holding. 



That's sort of what I thought. I don't see any performance or risk advantage in what they have done.

 
This is one fund family that truly is a closet index fund.  They add no value. 
Oct 29, 2008 10:40 pm
Morphius:
B24:

I I won't get the bid (I don't think they would award it to an advisor - I think they will go direct to money managers through their internal IPC), but it might be a good experience to at least go through the process, and be forced to do some research in this area, and possibly pursue others in the future.

I do some foundation and Not For Profit business and the term "IPC" is a new one to me. What does that stand for?Your description of the board members sounds typical, in my experience. They usually recruit from a variety of professions, not many of which necessarily have much relevant experience with making investment decisions. That is one of the reasons Russell is often pitched to these groups - the protection from fiduciary liability. Russell is a big enough name to give the board members some comfort that they will do a decent job and - importantly - leave the board members with a bit less risk of personal liability if the investments blow up. Much harder for anyone in the future to say they breached their fiduciary responsibilities if they adhere to a structured process and pick one of the largest. most recognized consultants and 'managers of managers' in the world. After all, if someone like Russell can't select good managers, how can board volunteers with little relevant experience be expected to do any better?If you get to the finals you'll need not just decent investment strategy recommendations, but something that address this fiduciary liability fear. Don't expect that fear to be articulated, but know it is real and it is there.





Investment Policy Committee. It's not just a term used by non-profits and foundations. Most investment firms use this term as well. It's the group or committee that sets the direction for the firms investment policy (recommendations). In other words, you have analysts, Chief Investment Officers, Chief Market Strategists, etc. But they generally have to run their ideas past the committee.



Thanks for the feedback. Like I said, I don't think I will get it (I might not even get to the table), but it would be a good experience to go through the process.

Oct 29, 2008 10:54 pm

I'm not particularly in the mood.  But here goes.

 
1.  Russell lists the appropriate index for each strategy.  R2 over 95 in each case.  Returns are virtually identical, beta almost exactly 1, alpha almost exactly 0.
 
2.  Entire families?  No.  Asset allocations? Yes.  Can I quantify?  Yes.  Returns vs. beta, or if you prefer std dev.
Oct 29, 2008 10:57 pm

Thanks for the IPC explanation.  It's always a good day when you learn something new.  I must confess none of the NFPs or foundations I work with have ever used that term to my knowledge.  I've seen Investment Committees and Finance Committees and Endowment Committees, but never an Investment Policy Committee. 

Only other thing I'll add is be careful of spending too much time on RFPs unless you think you've got a good chance.  Some of them are absurdly detailed and long and a complete waste of time, UNLESS you have an in from the outset.  It varies a lot - so decide about completing after you see the RFP.

Oct 29, 2008 10:59 pm
iceco1d:
2.  Can you give me an example of a fund family that does add value?  And can you quantify that value?
 
Transamerica...multi-manager alternative fund.  Value is quantified by free coffee from wholesaler.
 
Allianz/PIMCO...huge fan of small cap value, large cap value, international value, and many PIMCO bond funds.  Value is quantified by steak dinners from wholesaler.
Oct 30, 2008 11:50 am
Morphius:

Thanks for the IPC explanation.  It's always a good day when you learn something new.  I must confess none of the NFPs or foundations I work with have ever used that term to my knowledge.  I've seen Investment Committees and Finance Committees and Endowment Committees, but never an Investment Policy Committee. 

Only other thing I'll add is be careful of spending too much time on RFPs unless you think you've got a good chance.  Some of them are absurdly detailed and long and a complete waste of time, UNLESS you have an in from the outset.  It varies a lot - so decide about completing after you see the RFP.

 
Morph, I hear you.  I have no intention of making this some sort of crusade.  It's really more of a learning process so I can determine if it's even a space I want to play in.  My guess is going to be "NO" at this stage in my career, but I have networking opportunities with a lot of people in this arena, so I may make it a 10-year plan to establish myself in that circle, and then at that point, I will be well established, well-known, have a self-sustaining book, and then just go after a few big fish.  I have plenty of years ahead of me to plan this out.
 
As far as "IPC", you're right, they can call them whatever they want.
Oct 30, 2008 11:51 am

ICE, I hear you poo-poo many different investment strategies, but I have never actually heard what you do.  I'm not poking you, I am just curious.