Q&A with Margo Alexander

It’s time for the second big test of Margo Alexander’s career as chief executive officer of Mitchell Hutchins Asset Management Inc. First, she rebuilt the mutual fund arm of Paine Webber Group Inc., a unit that was so battered by bad performance four years ago that its own brokers wouldn’t sell the funds. But now that just enough time has passed for her to boast a three-year record of new, improved performance, robust sales and renewed trust among brokers, the stock market has turned against her and her industry.

Can she continue to keep money coming into the funds? As long as the funds do what she has primed them to do. “We have not stated as our goal to be the No. 1 performing fund family in every category,” she insists. “What we tell our brokers is that we want to achieve a consistent top-third or second-quartile performance.”

A warm, but intense and highly driven executive, the 27-year veteran of Mitchell Hutchins declares “I’m never satisfied.”

But she has reason to be so far.

Performance has improved enough that Mitchell Hutchins has attracted outside mutual fund firms that want it to manage their funds on a sub-advisory basis, Ms. Alexander says. In January, Barron’s ranked Mitchell Hutchins’ PaineWebber family of funds the 14th-best performer in returns for 1997, (compared to 44th of 46 in five-year returns) — far above PaineWebber’s brokerage house competitors.

Ms. Alexander has transformed risky stock funds and bond funds socked by bad derivative plays into what she describes as “sleep-well-at-night” funds managed mostly using quantitative analysis.

Q What was your mandate when you were appointed in 1994?

A The mandate was pretty simple: to improve performance, to rebuild trust with our brokers and our institutional clients. Once we established the senior investment people and added to the portfolio management portfolio group — we were simultaneously building a risk management group that reports directly to me and helps supervise the portfolios — we began to reach out to our brokers again. And we also were going back out to the institutional client base at that time.

Q Have you fulfilled your mandate?

A In this business relationships matter, and rebuilding trust doesn’t happen overnight. We spent a large part of ’95 fixing the investment process and the people. We began to see the fruit of those labors — it began in ’96, (went on) through ’97 and it continues today.

I am very pleased with what we have achieved. I’m not satisfied in that it has taken longer to rebuild the trust than I would have expected. So as a result, as good as our gains have been in new sales since 1996, we still think there’s room to grow with our own brokerage force. I suppose, honestly, I would have hoped we could have penetrated into the total mutual fund sales faster than we have. We’re on the path to do that. I would have liked to achieve that faster.

Q What percentage of sales by PaineWebber brokers are of your own funds?

A There’s a lot of different ways to look at it, but we’ve said it’s 25%. It’s up a lot. We hope to do better.

Q What was your goal?

A I don’t know that I had a specific number. 100% probably — I’m joking.

Q You would look like a firm pushing its own products over others.

A The truth is PaineWebber has a reputation of not pushing its brokers to do what the firm wants. We believe they should pick and choose among the products for their clients. I have wanted to compete on that basis, and I know what that means. I have to deliver the performance, the marketing, the support as standard as any outside fund company. I don’t have any natural advantage in serving our own brokers.

The only advantage is that our organization can be more personally involved with our brokers through the access we have being with PaineWebber. We’re also overcoming some competitive disadvantages. There’s a lot of brokers who do not want to be associated with a proprietary product. They don’t want any perceived conflict.

Q What are your brokers’ biggest concerns?

A When I first started going out there they were unhappy, and now when I go the questions tend to be operational or they offer suggestions on how to make the marketing materials better or they want to talk about the mutual funds. We give out Swiss Army knives and I like to joke with them, ‘When was the last time a Mitchell Hutchins person could hand you sharp metal instruments and feel safe?’

Q Can you describe the group’s investment philosophy?

A When we brought in Mark Tincher, chief investment officer of equities, he had come from Chase Manhattan Corp., where he used a number of quantitative models to screen for critical variables that generate a list of stocks. Those stocks then go to our fundamental analysts who check the reality of the forecasts and the prospects. And from that the managers pick a group of names. We have a value orientation.

We try not to be completely value driven. It’s not way over, down and out where we buy them and hope five years from now they go up. We’re trying to buy value but waiting to identify a specific catalyst that will get that value to begin to be realized.

Q Where do you see weaknesses in the mix?

A It’s not perfect, but we have a pretty complete lineup. We are in the process of developing a new tax-advantaged fund that we anticipate launching later this year. The trend to tax-advantaged funds is one we’ve seen easily for two or three years, and increasing interest in the last year. I think that’s a trend that will continue, particularly if we get into a period of lower returns. Obviously, the tax advantage and the fee issues all become more prominent when you’re not looking at 15%, 20% gains.

Q What is your vision for the fund family’s future?

A My focus is on strengthening and driving distribution rather than creating new products. Our strategy is to go into every reasonable distribution strategy we can pursue. Obviously one is mutual funds, but it’s also going into the 401(k) business. It’s the institutional market. It’s the institutional wrappers on the products that we have. And we have done virtually nothing with international distribution.

Q How would you do that?

A We have to figure that out. My point is we have a set of products, performance, credibility, and PaineWebber has a brand name. The opportunities open up to us in different ways.

Q What’s the goal in terms of assets under management?

A The firm has stated $100 billion in 2000. We have $54 billion. That is an aggressive goal obviously. We have looked at acquisition opportunities, which I’m sure we’ll look at periodically.

Q How does the constant talk of Paine Webber as a takeover target affect you?

A That has no bearing on my attention. I have been hearing rumors about Paine Webber being sold since 1977. Having watched a lot of companies do acquisitions in the late ’80s — Prudential-Bache, American Express-Shearson, Dean Witter-Sears. Oh, there were lots. — I am confident the firm has the capability of executing its strategy without making an acquisition.

Q What’s your take on these crazy markets?

A We think the market is stabilizing, and that all the bad things, concerns about corporate profits, etc., are all priced in. So we have as a firm a long-term positive assessment.

Q What are your personal aspirations?

A I’ll feel real good when a reporter comes to me and doesn’t ask about the past, and we have a five-year track record, and we’re considered a quality firm.

Vite

Margo N. Alexander, president and chief executive officer, Mitchell Hutchins Asset Management Inc.

Age: 51

Education: B.S.,University of California at Berkeley; M.B.A.,Harvard University

Major: “Either accounting or economics.”

But she does recall that she failed French.

Joined Mitchell Hutchins: 1973

First job at the firm: Securities analyst, covering the retail sector.

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