For Wall Street, the 1990s are shaping up to be a time of dwindling opportunities, lost jobs and meager profits.
But the unfolding decade almost seems special-ordered for Los Angeles-based Capital Group, the Southland's biggest private money manager:
* In a troubled investing environment that demands a long-term focus, Capital's oldest stock and bond mutual funds boast historical track records that are among the industry's best.
* While many firms are just now struggling with their baby boomer employees' restless ambitions, for 30 years Capital has had an egalitarian management structure that stresses high individual achievement--and lets junior employees run their own shows.
* While financial services companies of all kinds are paying dearly for the excesses of the 1980s, Capital's tortoise-like, conservative approach has left it in a powerful position to gain from competitors' weaknesses.
Yet for Capital's monolithic size--$55.8 billion under management, ranking it 16th largest of all U.S. money managers--the firm is a surprisingly quiet presence in Los Angeles. "We probably should be better known in our hometown," admits Jon Lovelace, the 63-year-old vice chairman of the firm and by most accounts its spiritual leader.
One of Capital's few highly visible executives in recent years has been Robert Kirby, chairman of the firm's institutional investing arm, Capital Guardian Trust. A member of the so-called Brady Commission that studied the 1987 stock market crash, he became a vocal opponent of computerized program trading in the late 1980s. In general, however, Capital has rarely sought publicity. Yet its investment record has become the envy of many rivals.
"It's a first-class operation," says Budge Collins, head of Collins Associates, a Newport Beach firm that tracks investment firm performance. "They hire good people and they keep them. They have very low turnover."
"It's an organization of which I've never heard anything negative," adds Michael Stolper, a San Diego pension consultant.
Both insiders and outsiders say much of the credit for Capital's success goes to the self-effacing Lovelace, a Princeton economics graduate whose father founded Capital in the early 1930s.
Ironically, Lovelace also now represents one of Capital's greatest challenges--that is, the challenge of doing without him as he nears retirement. Though Lovelace insists that Capital's management depth is so great that his presence wouldn't be missed, insiders say his departure would leave a void.
As the biggest stock mutual fund manager on the West Coast, Capital is the antithesis of its giant East Coast rival, Fidelity Investments.
Both firms began to make their names in the 1950s, and both have grown dramatically since. But Fidelity offers 124 mutual funds; Capital offers just 24. Fidelity aggressively jumps on new fund trends and is a magnet for "hot" money that jumps from investment to investment; Capital always chooses the slow road.
What's more, Fidelity's structure is based on what is sometimes called the "star system" of portfolio management, as personified by Peter Lynch, who ran the firm's Magellan Fund in the 1980s. Each Fidelity fund has one manager ultimately calling the shots.
Capital's approach is the polar opposite: All 24 funds are split among three to five money managers, each of whom is free to manage his or her slice without answering to one fund czar. In that way, no star system can develop because no single manager alone can make or break a fund.
The Capital system's results:
* The firm's three biggest stock funds far outgunned the average stock fund and the benchmark Standard & Poor's 500-stock index in the 10 years ended Sept. 30. An investor who put $10,000 in Capital's Investment Co. of America fund in 1980 would have $42,300 now. That same investment in the S&P 500 would be worth $37,000.
* Capital's success wasn't just a phenomenon of the 1980s. Its funds, under the American Funds name, have produced strong returns since the 1950s. That record has landed the firm a long list of accolades--from Forbes magazine's fund honor roll to the top spot in a 1990 report on the best fund families by fund tracker Kanon Bloch Carre.
On the surface, having three to five people separately managing chunks of a single fund--as bullishly or bearishly as each sees fit--might seem like an invitation to investment anarchy. But Capital has discovered that, regardless of short-term conflicts, the results over the long-term somehow come together.
The multiple-manager system was devised by Lovelace in 1958 as just a transitional idea after a fund's manager moved up. But as he saw it working, Lovelace and his co-managers became convinced that the concept was a smarter approach than the one-manager system.
Another Lovelace innovation came in the mid-1960s, when Capital began including its research analysts in the multiple-manager system. Traditionally, analysts have simply fed ideas to fund managers to accept or reject.