On the announcement in December that the global financial services company Russell Investments might relocate its headquarters, Tacoma officials launched a pitched battle to keep this cash cow in their city. "Project Destiny," as the effort is called, is at once low-key and dramatic.
Last week, Gov. Chris Gregoire pledged $700,000 in unclaimed lottery winnings to help Project Destiny. Earlier this year, Pierce County announced it will purchase the Tacoma Narrows Airport from the city of Tacoma for $5 million, with plans to woo corporate clients. County Executive John Ladenburg assured a Gig Harbor Chamber of Commerce audience that corporate jets are "quieter." Ladenburg himself has said, and reports in the press concur, that Russell leaders think this is a swell idea.
Ladenburg also made reference to a new eco-friendly headquarters office complex for Russell. Russell managers are keen on redesigning their trading floor, which they argue is now configured in a way that obscures the view one trader has of another because the elevator shaft is positioned in the center of the building. The company projects it will need six times the space provided by its current digs. However, building footprints in downtown Tacoma being what they are, accommodating Russell's space requirements necessitates lifting the building height restrictions currently in place.
With a headquarters staff of 1,100, they've outgrown their downtown building on A Street. The real question is: Have they outgrown Tacoma itself?
Russell Investments was founded in 1936 by Frank Russell, but the family member credited with taking a small, Tacoma-based brokerage house and turning it into a successful multinational investment firm is his grandson, George Russell.
It's a story Russell people know well: In 1969, George Russell called on nationwide retailer J.C. Penney to sell them on his company's new service: money-manager evaluation. He won J.C. Penney as a client, and the retail giant is still a client. With that pitch, Russell pioneered a new industry. Instead of focusing on managing money, Russell would focus on evaluating the people who manage money.
Russell added a valued service to their clients by acting as pension fund consultants who could identify money managers with the best performance. Says Dan Inveen, a former Russell researcher: "From there, Russell developed the concept of indexes and multi-manager investing. Russell began many years before those practices gained widespread acceptance."
In 1984, Russell created the equity indexes — that's not a typo; the company prefers to use "indexes" rather than "indices." The Russell 2000 is familiar to most investors and seems to give people the impression that Russell focuses on small market capitalization. (Capitalization is a measure of the size of a public company based on its share price multiplied by the number of outstanding shares.) However, what Russell does is look at the 3,000 largest companies, culling them into the Russell 3000, and then skims the top one thousand from those to get the Russell 1000 (large-cap), with the bottom making up the Russell 2000. While Russell has stiff competition in the index realm — Morningstar, Standard & Poor's, Dow Jones Industrial Average — its U.S. family of indexes is used to benchmark more assets than all other U.S. equity indexes combined.
Russell lists all companies in descending order by market capitalization. The rationale behind indexing by market capitalization is that it conveys an accurate public opinion of a company's worth: You buy the stock, and you literally buy into the company. The Russell 3000 captures nearly all of the U.S. equity market. Since 2002, the Russell 2000 has risen 141 percent, ahead of Standard & Poor's 500 index by 58 percentage points and double the Dow Jones Industrial Average.
Russell moved into the arena of global equity indexes in 2007 by partnering with the oldest brokerage firm in Japan, Nomura Securities, founded in 1925. The global indexes capture 11,000 stocks worldwide, representing 98 percent of the global equity market.
It's this status as a global company that should make Tacoma nervous. The same year that George Russell sold J.C. Penney on the pension consulting concept, he opened a second office in New York. Ten years later, he opened a London office. Russell Investments now does business in 44 countries, with offices in London, Paris, Amsterdam, Johannesburg, Sydney, Melbourne, Auckland, Singapore, Hong Kong, Tokyo, Toronto, San Francisco, and New York. Its world headquarters address seems modest in comparison. In 1988, instead of relocating to New York or building in Seattle, George Russell and his wife, Jane, designed a headquarters building themselves in their hometown, Tacoma. Of the pending relocation decision, George Russell, now chairman emeritus, says he has no say.
With Seattle's South Lake Union neighborhood on the table as a possible relocation site, it remains to be seen whether Russell leadership will be swayed into thinking that more impressive corporate digs would better fit the Russell of the future. It's a future that might take Russell far from its pension-fund roots.
Following Russell's founding in 1936, pension plans enjoyed popularity first with government employers and then with corporate entities, such as J.C. Penney, which promised retirement security to attract and retain valuable employees, a particularly strong selling point after the Great Depression. The union movement's work to negotiate for pensions also fueled their prominence. However, by the time George Russell came to call at J.C. Penney, the traditional pension plan — a defined benefit plan funded 100 percent by the employer and guaranteeing an income to the retiree — was already moving aside in favor of defined contribution plans.
Rare today is the pension plan funded 100 percent by the employer. Employees are lucky to get an employer to match. A defined contribution plan does not offer a guaranteed income; rather, what you receive at retirement is determined by the plan's performance, the amount you put into it, and the amount your employer puts in, if any. Social Security once promised to fill the gap, but the Social Security Board of Trustees projects that by 2018 it will be expected to pay out more than it is taking in. Which leaves retirement planning largely up to the individual.
Individuals are investing as they never have before, and despite fears of a recession, they're doing so with more money available to invest. According to the U.S. Department of Labor, the Federal Reserve, and Moss Adams, growth in household investable assets has tripled in the past 25 years. In the next five years, investable assets are forecast to grow by more than $5 trillion. Even if investable asset growth slows, an increase in the need for professional investment advice means that those in the business of providing it are in a very good spot.
This is true for Russell, which as of year-end 2007 had $228 billion in assets under management, according to spokesperson Jennifer Tice. "Russell's clients include retirement plans, foundations, endowments and investment plans of all types," says Tice. "Investors have access to Russell's services through a network that includes many of the world's top banks, brokers, insurance companies and independent investment advisors."
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