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."
Besides its core function as the nation's top indexer, Russell promotes six key services:
- Investment consulting: They guide some of the world's largest investors, offering advice to clients holding $2 trillion in assets.
- Investment management: They manage more than $230 billion in assets in 320 funds.
- Manager and product research: They analyze, interview, and then select the world's best money managers.
- Alternative investments: They provide services in real estate, hedge funds, and private equity.
- Investment services: They manage portfolios, cash, derivatives exposure, commissions, foreign currency exchange, and transition strategies.
- Retirement services: They extend their institutional investing approach to defined contribution plan sponsors.
Russell's challenge has been to effectively capitalize on the brand recognition of its indexes. Inveen thinks they're succeeding: "They've worked very hard the last few years to draw a clear connection between the Russell indexes and their fund management capabilities in the eyes of the marketplace."
According to a Russell survey conducted in December of 2007, asset allocation to alternative investments will rise in the next two years, making their offerings in hedge funds and other alternatives more important. A chief competitor in this arena, Seattle's Quellos Capital Management, one of the world's largest funds of hedge funds, was bought by BlackRock in October 2007, evidence of a consolidating arena.
Talent recruitment is a key point to consider in Russell's decision to stay in Tacoma or go. The finance industry is one of high turnover generally, and a retiring baby boomer population of finance professionals coupled with a surge in the demand for trusted investment advice make Russell's task a particularly challenging one. They have more than 2,000 associates in 20 offices worldwide, and a recent search for open positions on their Web site produced 32. All but 10 of these were in Tacoma.
Russell spokesperson Tice declined to comment on specific recruitment challenges due to the location of the headquarters. Nor would she provide total numbers of staff at each office worldwide. According to Fortune, Russell has 1,206 U.S. employees and 732 who work outside the U.S. When asked whether Tacoma-area schools — Pacific Lutheran University, the University of Puget Sound, and the University of Washington-Tacoma — served as feeder schools for Russell, Tice said, "We recruit from many colleges and universities across the country, including those."
On Russell's career page, they refer to its headquarters as "The Greater Tacoma/Seattle Area," and a page deeper into the site, job-seekers get promotional language on "Pacific Northwest Living" that leads with the topic "Natural Beauty," referring to "good skiing" which "can be reached from within 30 minutes of downtown Seattle or Tacoma." Heading off the "Arts & Culture" description of the "Seattle-Tacoma metropolitan area" is not the Glass Museum or Tacoma Art Museum; those follow first references to Seattle cultural offerings and the proclamation that "The Pacific Northwest region has long been synonymous with arts and culture." Web site authors do rather nice work in this bit of education toward the end: Did you know that the Seattle/Tacoma area is home to the highest number of glassblowing studios outside of Venice, Italy? For a true glass-art experience, you need not leave Tacoma, home of Russell Investment Group headquarters.
John McLaughlin graduated from Seattle University in 2006, an internship with Russell already under his belt. When the internship was up, he took a full-time job with the company and moved to Tacoma, where he lived a block away from Russell's headquarters.
McLaughlin's day began at 4 a.m., to trade in European markets before they close, so moving to Tacoma made a lot of sense to him at the time. But after one year, he moved back to Seattle's Queen Anne Hill and tried to tough out the commute. Eventually, he took a job in downtown Seattle.
"Living in Tacoma absolutely had something to do with my decision to leave Russell," he says. At 25 now, McLaughlin found Tacoma's cultural scene sorely lacking. "It was pretty boring," he says. "There was nothing down there."
McLaughlin left even though he found it intellectually stimulating to be at Russell, which he knew first by reputation, having encountered the firm through his finance curriculum and as a Wall Street Journal reader. "It was fascinating to see how much money moves across the world every day," he says. "They're a global company in every sense of the word." When he entered Russell's offices, he found himself connected to places like Tokyo and London. "Then you go back outside, and you're in Tacoma," he says. "And you smell the paper mill."
Still, McLaughlin surmises that Russell will stay put, citing that it does an excellent job of recruiting talent from the urban areas where such people are concentrated. He also observes that recruits make the conscious decision to relocate to Tacoma knowing what they may lose — as well as gain, in the form of larger homes and more amenities than they could buy in a more cosmopolitan city.
By constrast, Inveen is a loyal Tacoma resident, born and bred there. He served as a research manager with Russell for seven years but left to take a position as a consultant with Moss Adams. Whereas McLaughlin's commute from Seattle to Tacoma bucked the traffic trend, Inveen's follows it. He takes the train each morning to avoid rush-hour congestion, a mode that suits him, as he can easily put in another hour or so of work without interruption, often doing the reading he finds tough to do in the office.
"I'd work in Tacoma if I could," says Inveen. "I prefer to live in Tacoma because that's where my family is, my roots are. It's gotten to be an increasingly attractive city to live in over the years. It has many of the amenities of a big town but still has the feel of a small town." His spouse, however, was a Seattleite. "She took some convincing to make that move, but no regrets at this point," he says.
For Inveen, the change had less to do with Russell's location and more to do with his own career path. At Russell, he was behind the scenes, working in the corporate marketing division in a research support capacity, and he wanted to interact directly with clients.
Inveen would have been able to both live and work in Tacoma if Russell had what it would naturally have if it were located in a bigger city: local competition for staff. In a cynical sense, Russell's Tacoma location may actually boost staff retention, as leaving Russell means either commuting or moving elsewhere.
While Russell's name is synonymous with leading indexes such as the Russell 2000, its name is not synonymous with Tacoma.
Tacoma officials know they can't afford to lose another company as the city once lost Weyerhaeuser, which moved its headquarters to the adjoining suburb of Federal Way in 1971. In late January, Tacoma-area lawmakers and business leaders testified in support of House Bill 3099 without any mention of Russell — even though the measure would enable the company to construct its new headquarters free of the sales tax normally assessed. The News-Tribune's Peter Callaghan rightly called Russell the "elephant in the room" during those testimonies. As of this writing, HB 3099 has successfully passed through two house committees and is being read by a third.
Other items on Russell's wish list will prove more challenging, such as the relationship between Russell executives and Tacoma city officials. As a pension fund leader, Russell executives found it a constant source of embarrassment that their own host city did not rely on Russell's services. Last year, the city of Tacoma did invest part of its employee pension fund with Russell, a somewhat controversial move.
Try as they might on the tangible incentives, Tacoma may end up losing on the intangibles, despite valiant efforts on the part of city officials for years now to make the city the kind of place that would draw top talent to a firm like Russell.
Russell is decidedly mum about their decision-making process and specific offers from other cities that they may or may not be considering. Tice says only this: "We hope to have a decision by the end of this year, and our options could include: add on to the current A Street headquarters; build somewhere else in Tacoma; build elsewhere in the Puget Sound region."
It remains to be seen whether Russell's destiny lies in the City of Destiny or elsewhere. Perhaps Russell is merely bluffing, or Tacoma will accommodate them better than any new city can. Regardless where they end up, they are definitely worth paying attention to.
"I think they will continue to be a more global company," says Inveen. "A good bulk of the growth of that company in terms of employment is in other places besides Tacoma."
Disclosure: Author Lisa Albers is a contract editor for the consulting division of Moss Adams, mentioned in this article. Russell Investments is a client of Moss Adams, but she does no work for Russell.Russell Investments at a glance
CEO: Craig Ueland
Russell is the privately held subsidiary of Northwestern Mutual, a U.S. market share leader for total individual life insurance premiums.
Since 1999, Russell has been listed by Fortune as one of the Best Companies to Work For. (Other Northwest firms on the list: Starbucks, Nordstrom, REI, Microsoft.)
Employees receive paid sabbaticals and 100 percent health care coverage.
Russell staff is comprised of 12 percent who are ethnic minorities and 52 percent women. (A spokesperson declined to say how many of the women were in professional vs. administrative roles.)
Russell provides a cash-matching program for associates who donate time and money to charity.
Russell contributed approximately $3 million worldwide in 2006. About $1 million of that was dedicated to efforts in Pierce County.
Top Russell competitors: Goldman Sachs, Merrill Lynch, Morgan Stanley.
(Sources: Russell Investments, Fortune, company Web sites)