Victory SBSF Capital Management earned its spurs as Spears Benzak Salomon & Farrell. In 1995, after 17 years as an independent financial adviser, it was bought by Victory Capital Management, a subsidiary of KeyCorp, the Cleveland-based financial services firm.
A value manager with $4 billion in assets under management, Victory SBSF manages its own money and runs a trading operation in New York.
Kathleen McLaughlin-Jerge, managing director of the firm's trading desk, and two colleagues execute trades across all equity classes.
The bulk of Victory SBSF's business comes from managed accounts. The company has 24 wrap-fee sponsors, or brokers, that direct individual and pension accounts to the investment management firm. Clients' fees, based on assets under management, are shared by the introducing broker and Victory SBSF. The money manager's largest sponsors are Merrill Lynch, Salomon Smith Barney, UBS PaineWebber, Prudential Securities and AG Edwards. Victory SBSF similarly handles the portfolios in its managed accounts and wrap-fee business.
The firm revisits its entire portfolio every week and has twice-weekly research meetings. Analysts and portfolio managers determine what the price parameters should be for all trades. "We set up guidelines for where we'd enter a stock, where we'd buy additional stock if the price declined, where we'd sell a partial position, and where we'd sell full," said McLaughlin-Jerge.
These parameters are based on daily trading volume, the capitalization of a company, liquidity, and the return the firm is looking for on a stock.
Victory SBSF typically starts with a one percent position in a specific stock for all its accounts across the board. The investment manager has a strict buy and sell discipline focused on preserving capital and limiting losses.
If a stock holding declines 15 percent vis-a-vis the Russell 1000 Index, for instance, the holding is reevaluated. Gauging what's actually happening in the markets is vital – and harder than it used to be.
"The market often tells you something that isn't always discernable by analysts, no matter how close they are to management," said McLaughlin-Jerge. "For example, if a difficult issue is extremely easy to buy, the market is telling us to be cautious buying the issue."
The financial markets had a rocky time in the 1990s. "The intraday trading patterns for the last three years have been so volatile that you walk out of the office and you think you've been on a seesaw all day," said McLaughlin-Jerge. Before, her trading desk rarely used limit orders. Now it depends on them.
Meanwhile, decimalization has forced orders to be broken down into smaller and smaller parcels. "That does not help our clients and it doesn't add to the liquidity," she said.
McLaughlin-Jerge has worked in the markets since before negotiated commissions. She points out sweeping changes. "This has always been a service business," she said. "But I can't tell you how often we sit here and the telephone doesn't ring."
The wrap-fee brokers are usually set up as separate desks. And McLaughlin-Jerge has only good words for them. It's the institutional brokerage desks that have gotten slack in recent years about making the customary research trading calls. This comes at the same time that brokers are moaning about ECNs eating away at their business.
"Perhaps if they were better at servicing their clients, that wouldn't be happening," said McLaughlin-Jerge. "Wall Street brokers have been pretty fat cats for the last several years, but they're starting to feel the heat now," she added. "Basically, they just got lazy."
