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#145 Early Days At Russell Investments

The excitement of building a legend


I mentioned that I was interviewed by Josh Cohen for a podcast on the origins of pension consulting. The interview took place in June and the podcast was published in August. I also said that Josh necessarily used only a small portion of our very long conversation, and that I would write a future blog post about some of the people who influenced my early days at Russell, since my time there turned out to be such a wonderful part of my life. This is it.


I was hired by Jan Twardowski.

Jan, incidentally, was one of the three founders of Vanguard, along with Jack Bogle and Jim Riepe. Jan and his wife moved to Paris in 1969 to be the American representative of a joint venture involving his firm, Wellington Management Company (a precursor to Vanguard), a French bank, Société Genèrale, and a French insurance company, Union des Assurances de Paris. Jan says, “The venture eventually failed, but our three-year stay was a great success, a life-changing event.” That experience was what led George Russell to hire Jan in 1979, to open a London office that eventually expanded to an international division. For example, Jan (along with his US deputy Donal Botkin) hired me and two others (JJ Woolverton and Renata Klemensowicz) in 1984 to start the Toronto office. (More about that another time.)

Along the way, much more importantly, Jan hired Mike Phillips in 1981 to run the London office, and Mike eventually succeeded George as CEO of Russell, and showed how well the firm would flourish even after its creator, George, graduated to the philanthropic stage of his life. I succeeded Mike as head of consulting after moving to the firm’s HQ, then in Tacoma, WA. And Jan also led Frank Russell Securities and grew it into a large profit center, with its own trading room.


Josh mentioned the Russell Indexes (the Russell 1000, 2000 and 3000). Along with so many events captured by Josh in his podcast series,  and in fact along with so many events in Russell’s history, the creation of the indices was another happy accident.

In those early days, clients (mostly large pension funds) got different asset valuations and different returns reported by their managers and their fund custodians. As you can guess, this caused confusion. The only way to reconcile the different numbers was to unify the portfolio accounting definitively in something George invented, called the Portfolio Activity Report (PAR for short). This was long before custodians became very good at this. But it was the data in those PAR reports that Kelly Haughton used to create the Russell Indexes.

It became apparent, looking at their returns, that managers found that the S&P 500 was much easier to beat if you selected companies outside it. (Today we know about the “small cap effect,” but we didn’t then.)

So Kelly wondered about an alternative benchmark for US equities. What about the Wilshire 5000? Well, it had too many companies for which information was difficult to get, and were very infrequently traded. So, Kelly’s research showed that a bit more than 3,000 companies were trackable and tradable. Hence the Russell 3000.

So, split that between the S&P 500 and the remaining 2,500? No, said Madelyn Smith, the senior manager research professional: managers go way outside the 500 – they probably feel the biggest 1,000 companies are their natural territory. And that’s why the Russell 1000 was created, as a more natural benchmark for US equity managers.

And the Russell 2000 was simply the residue of the 3000, though it has subsequently become more important than the 1000. You never know how ideas are going to turn out.

Jan confessed to me, with a big laugh, that after all of this magnificent work happened, he told Kelly something along the lines of: “That’s good fun, now go back to your regular job!”

As for Kelly, the hero of the story, whose unprompted curiosity led him to do the research, he had a brilliant career at Russell, leaving after 25 years there and taking a break, and now he has formed his own company that provides synthetic exposure to private real estate.


Thinking of Madelyn, one of the pioneers of manager research … She recalled some of her early interviews of managers when she started to travel internationally, particularly in connection with the UK ones, the Merchant Banks. They had their own ornate dining rooms with their own chefs, and they served lunch to their guests with fine wines. These people, representing banks that had been in business around the world for 200 years, were then asked by brash Americans to answer questions “that people of good breeding would never ask.”


The Employee Retirement Income Security Act (or ERISA, for short) was passed in 1974. It had a huge impact. ERISA said you had to be a fiduciary. And this meant something special. You had to make prudent decisions. That means you have to be well-informed, and if you aren’t, you need to hire someone, like a consultant, who is. And prudence also implies knowing how other prudent people in your position make similar decisions – so suddenly the need for looking at your peers grew enormously. And out of all that grew so many aspects of the consulting business. I remember hearing ERISA described at a conference facetiously as “the consultant’s full employment act of 1974.”

“Peer universes” (investment statistics of sponsors who were your peers) became big around this time. It was Charley Ellis and Greenwich Associates in 1972 who led the way in the US, and their example was followed in the next several years around the world. After I joined Russell and started working with clients around the world, I noticed what a huge influence those universes had. I remember that the average asset allocation in the US was 60% equities and 40% bonds (the famous “60/40”), but in the UK it was 70/30 and in Canada it was 50/50. And companies had a tendency to follow the pack, even a company that had operations and pension funds in all three countries: they’d follow each country’s peer group and have different asset allocations in different countries, even though presumably their risk tolerance was the same everywhere.


The next big development was what today has become known as OCIO (having an “outsourced Chief Investment Officer”), though nobody dreamed in those days of using an expression like that. You might actually call it the accidental OCIO, to go along with the name of Josh’s podcast series.

In the consultant podcast episode Josh used my narrative of how George, ever the opportunist, thought to commingle the assets of several small pension funds, so that together their size enabled them to use the multi-asset, multi-style, multi-manager (“M-cubed” as he called it) approach that hitherto had been feasible only for large sponsors. And that was the birth of the Frank Russell Trust Company. Its first CEO? The very same Paul Kaltinick who, when he was the Treasurer at JC Penney, had hired George as the first ever pension investment consultant. Paul liked the commingling idea so much that he left JC Penney to lead the Trust Company.

(A year later George formed the Frank Russell Investment Management Company, or FRIMCO for short, simply to make the same principles available to financial advisors working with individuals.)

It was interesting for me to hear about the attitude of Russell’s consulting clients, when the Trust Company was created. Mostly they just trusted George, after years of working with him and the culture of openness and non-negotiable integrity he developed in his company. A few clients were worried that he’d make much more money from the Trust Company, and that would dilute his attention to the consulting clients. Essentially George said: “Trust me, and I’ll come back to you in 5 years and you can tell me how things have worked out.” Of course, George being George, he checked in with them much more frequently than that. And he had to assure them, and the press, that he simply didn’t recommend his own funds to the consulting clients.


Which makes me think about the company’s culture. There were two elements that I remember vividly. One was the expression “non-negotiable integrity” – and he meant it literally. Cross it once, and you’re out. Building a reputation was too important. And if ever we were in doubt, I remember the second thing: Imagine this is in the headlines tomorrow morning in the Wall Street Journal – how would you feel? That was the practical test of any action or advice you contemplated.

But with those two elements as a given, we were free to make our own decisions about how to deal with issues. That, and the superb professionals George hired, together formed an attractive basis for other professionals to join. It wasn’t the firm’s location. The company headquarters at the time were in Tacoma, WA. Most of us had never heard of Tacoma. As Jan himself expressed it: “Tacoma? Where’s that? I thought it was an eye disease.”




I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

10 Responses to “#145 Early Days At Russell Investments”

  1. Thank you for the nice article. The bear stock market in 1974 was a wake-up call to many plan sponsors. They were open to hiring independent investment advisors as their faith in the traditional large institutions such as banks and insurance companies faltered. This required consultants to locate the boutique money managers. Many small firms got their start in the period 1975-1980, and it was in this period that consultants flourished.

  2. KC says:

    I very much enjoyed reading this post tonight. What a lovely, and interesting look back at your early days at Russell. Dare I say Jan Twardowski’s hiring decision 37 years ago was a good one!

    • Don Ezra says:

      Thanks. Yes, Jan’s decision was certainly a very good one — for me. It transformed my life. It was so nice to chat with Jan and Mike again, before going Josh’s podcast.

  3. Eric Weigel says:

    A wonderful set of comments about Russell. What I recall most vividly from my early career days at Russell are two things.

    The first, intellectual honesty. There was always a forum to do research and let the data speak for itself. That gave everybody an opportunity to express themselves.

    The second thing I remember is the openness of the company from George and Jane on down. You were free to interact with all people regardless of seniority. Hierarchy did not matter. You always felt welcome and part of the “team”.

    Best culture of any company I have worked for. The example was set at the top and flowed down.

    • Don Ezra says:

      Perfectly expressed: “set at the top and flowed down.” And thanks for mentioning Jane, who did indeed set the culture.

  4. Cheryl Swanberg says:

    Hi Don,

    Thanks for the Russell recap. I was so blessed to be there for 25 years and to meet you at the time you were appointed Head of Consulting. Who knew that meeting would turn into a life long friendship. I still live by the non- negotiable integrity. It has never let me down.

    • Don Ezra says:

      Thanks, Cheryl. Yes, I think one of the consequences of the culture was that those who liked it felt they were working with friends, and some of those friendships became lifelong ones, overcoming moves.

  5. Mike Clark says:

    Wonderful reflections to trigger my own. 21 years there. Yes to the open culture point. Which rather sadly withered!

    One story for you. My (very recent) source must remain anonymous. And in good journalistic tradition, I will need to check this out for validity. However, I must say it rings true. Philip Glaze, a seasoned manager researcher in the best Russell tradition, visited Baillie Gifford in the late 90s. He was so appalled by the lack of an investment process that when he fed back his assessment, they decided they needed to craft one!

    The rest is history.

    Though of course, the future only rhymes with the past, nothing more. We might gently ask what risks their business model is now exposed to.

    • Don Ezra says:

      Thanks, Mike. The story certainly rings true — I heard similar ones in the US where Russell turned out to be the prod that generated much internal thought and rigour.

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