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05/09/2010

Byron Wien: Man of Many Years


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Byron WienByron Wien is having an especially good year. Not only has the long-time strategy guru received a Lifetime Achievement Award from the New York Society of Security Analysts, Inc., he has also enjoyed a higher-than-normal batting average on his signature Ten Surprises.

Moreover, at age 75, he is fulfilling his three most important goals: he is alive, he is healthy, and he has friends. Boy, does he have friends. Called by some the Perle Mesta of Wall Street, Wien continues to collect people all over the world—people who give him ideas and feed him information, helping Wien develop the kind of insights that have long nourished his popular year-end forecasts.

For many years a top-ranked strategist at Morgan Stanley, Wien donned the mantle of chief investment strategist for Pequot Capital three years ago. Much to the relief of his many fans, he has continued each New Year’s Day to publish his predictions for the upcoming year—forecasts that generally buck the consensus and that more often than not show the herd to be galloping in the wrong direction.

“Usually, about half of the surprises work out,” says Wien modestly. That’s actually quite an accomplishment, since he purposely chooses predictions that have about a one-in-three chance of coming true. This year, having forecast a more assertive Russian President Medvedev, rising inflation, and a sharp drop in Chinese markets, his soothsaying looks pretty good. Born as a competitive weapon and also to combat what Wien describes as a subversive trend toward “incremental thinking” on Wall Street, the surprises have garnered the strategist a lot of attention over the years.

Patricia Chadwick, president of Ravensgate Partners and a longtime client of Wien, says, “Byron is multifaceted. His Ten Surprises give you a sound basis for thinking about the issues of the day; he loves playing devil’s advocate with ideas.”

While the annual crystal-ball gazing is popular with investors, it drives his wife Anita crazy. For a good part of their thirty years of marriage, she says, Wien has been mentally AWOL during the holidays. “Other people relax around Christmas. He’s sitting there with this distant look in his eye.” Since he publishes his forecasts on January 1, celebrating New Year’s Eve is a nonstarter.

It’s not as though Anita finds her husband’s cogitations boring. Far from it. She was for many years a principal of the G7 Group, a highly respected consultancy focused on global macroeconomic issues. After selling the firm, her team reassembled at a new outfit called Observatory Group.

Not surprisingly, the Wiens frequently engage in what she describes as “animated discussions” of political and economic issues, leading longtime friend George Soros to describe her as “a wonderful partner for Byron. She is also serious about the world outlook. They make a very strong team.”

The Wiens typically spend the holidays in East Hampton, a beloved retreat that Anita describes as “very conducive for thinking and writing.” Wien begins to formulate his list of surprises in late October, usually beginning with 15 or 20 frontrunners, which he whittles down to about 10. Sometimes, his wife says, he will change one of the predictions at the last minute. She describes the process as far reaching and thoughtful.

“He talks to many people in the investment community, trying to figure out which are the critical issues. What’s the consensus? The outlook for the dollar? Gold?

“He focuses on key investment variables as well as on other issues. For instance, this year he predicted that pollution in Beijing would be a problem for the marathoners at the Olympics.

“It’s important for Byron to understand the consensus. He wants to go against it; but at the same time, he really believes the surprises.”

The surprises date from 1985, when Wien joined Morgan Stanley as a domestic strategist.

“Barton Biggs was moving over to be the global strategist, and they needed a US person. I was really flattered until I found that I was the seventh person they had spoken to. I was interviewed by dozens of people; it was a six-month process,” Wien recalls.

The search was probably complicated by the need to find someone who could coexist with the acerbic Biggs. As one mutual friend observes, “Biggs isn’t warm and cuddly like Wien.”

Wien’s partnership with Barton Biggs lasted for 18 years. Their survival and long-term success owe much to the firm’s decision early on to allow clients to hear more than one opinion. In the mid-1980s some Street firms, such as Goldman Sachs, tried to corral all their analysts and strategists into espousing a unified outlook—a feat problematized not only by the inevitable divergence of views, but by colossal egos as well.

“In 1991 there was an effort by the firm to have one view. They said the clients were confused. Barton of course would have been the czar. I convinced them that you could attract better people if you allowed a variety of opinions, and that the salesmen and analysts would not have any conviction if they were out promoting opinions they didn’t buy into. Also, you couldn’t hold anybody accountable. Somehow, I prevailed.”

His colleagues would probably say that Wien prevailed because he has a winning way with people. Though he would be the last to admit it, some of Wien’s success certainly stems from his warmth and humor. Also, he is unassuming—a rarity on Wall Street. He is able to collect sources and clients partly because, in the words of one stock picker who doesn’t have any patience for top-down thinkers, “He couldn’t be a smarter or a nicer guy.”

At the start of his Morgan Stanley career, Wien realized he needed a marketing “hook.” “When I started, I was up against Lee Cooperman at Goldman Sachs and Stan Seligson at Merrill Lynch. These guys were really smart. I thought, ‘How am I going to beat them?’

“I decided to do something different, and came up with the Ten Surprises. Morgan Stanley didn’t want to do it; they thought it would embarrass the firm and humiliate me. In those days they didn’t take those kinds of risks. They weren’t very venturesome.”

Given that, the folks at Morgan Stanley were probably quite taken aback by Wien’s text from the 1990s on “the greed of investment bankers.” The higher-ups at the powerhouse firm may have been scandalized, but the publication earned Wien an important admirer—Arthur Rock, legendary banker to Silicon Valley, considered by many the first real venture capitalist.

“I agreed with him,” says Rock of Wien’s views in that article, adding with a chuckle, “Morgan Stanley didn’t like that piece at all.”

The Ten Surprises was not the only marketing gimmick that drew attention. Another popular product has been Wien’s annual essay reflecting the views of the “Smartest Man in Europe.” Wien met this “exotic guy,” whose ancestors operated canteens along the Silk Road in the 16th century, at a Morgan Stanley conference some 20 years ago. The Mystery Source has a worldly perspective and anticipates long-term trends with uncanny accuracy. In the mid-1980s he predicted the fall of communism; in 2001, he turned positive on the stock market.

His current outlook—dubbed “Overcoat Time” by Wien—is anything but sunny. He is alarmed by the excess leverage that has inflated Western economies and that must be wrung out of the system before solid growth can resume. The Smartest Man recently visited Saudi Arabia for the first time and was uplifted by the optimism there. He told Wien, “Talking to people in Europe and the United States depresses me. I plan to go to Saudi Arabia every 90 days for a psychological uplift.”

The Silk Road descendant is only one of many sources Wien has collected over the decades. Indeed, Wien’s clients say that his global network of highly placed people—like George Soros—is one of his deadliest weapons.

Soros describes Wien as a “close friend and close advisor on my personal business.” Wien serves on the board of Soros’s Quantum Endowment Fund, and has provided guidance on issues like succession planning. He was also, according to Soros, “very helpful when I wrote my book Alchemy of Finance. He advised me in a constructive way. He then coordinated with me on a second book: Soros on Soros: Staying ahead of the Curve. He coauthored the part about the foundation.”

Bob Burch, managing partner of A. W. Jones & Company, the first hedge fund and one of the first funds-of-funds, is another close friend and also a longtime East Hampton neighbor. He says, “Byron has a great network of very intelligent people. He gets lots of great input and synthesizes all of it. He’s a great explainer of cutting-edge trends. He makes sense, and writes very well. We are constantly reading quarterly letters from the best hedge-fund people; he’s better than anyone else.”

Though Wien first came to Wall Street as an analyst, he is the first to admit that picking stocks was never his strength. Instead, he always looked at the big picture.

“When I started out,” he confesses, “I only knew about the US. I didn’t know about currencies, or the rest of the world. Nobody did. Later, I became more macro oriented, and I helped portfolio managers think about geopolitical events. I began to be able to think in themes.”

Wien and his wife AnitaNobody knew about currencies but Soros, that is. Wien met Soros in the late 1960s, when the storied investor became interested in Japanese insurance companies. That encounter expanded Wien’s focus to encompass both global happenings and a broad mix of asset classes.

Wien grew up in Chicago, and did well enough at the local public schools to earn a berth at Harvard. He majored in chemistry and physics as an undergraduate, though he never intended to be either a chemist or a physicist. “That was a way to learn the sciences; I thought I could always learn the humanities another way.

“When I was a senior I realized I was about to graduate but didn’t know how to do much of anything, even with this prestigious diploma. I decided that I had better get a graduate degree, so I looked at medical school, law school, and so on. I figured I’d fall asleep in law school, and that medical school wasn’t for me, even though I had fulfilled most of the requirements (and my father had been a doctor). So I went to Harvard Business School almost by default. I had worked for the Crimson [the daily student newspaper], I was interested in marketing, and I liked writing. So when I got out I went to work for an ad agency. And I didn’t like it. So I got a job with a consulting company in Chicago, and finally with a food-service outfit that transferred me to New York.

“I didn’t know anyone in New York, so I reestablished contact with some of my business-school buddies. One had started a small money-management firm. He thought that with all my consulting and business experience I’d be a great securities analyst. In the 1960s, Wall Street was a very different place. Most of the firms were private and family owned. Connections were very important—we used to say that to work there you needed brains, blood, and money. At best I had one of those.”

Though it meant taking a pay cut, Wien joined his friend’s firm, Brokaw, Schaenen & Clancy, which merged later into Weiss, Peck & Greer.

“I knew a lot about analyzing companies but I didn’t know a lot about the stock market. I was one of those kids that bought his first stock at age 13, but I still wasn’t very sophisticated.”

Wien was a quick learner, absorbing input from all quarters.

“I tried to figure out how to become a better stock picker, so I started to attend weekly meetings of a group of market technicians. That helped me quite a lot. To this day I use technical analysis. The way I refer to it is: When I go hunting I take along my dog, but I don’t give him the gun.”

Wien ultimately became a partner at Brokaw, Schaenen, staying with the firm from 1965 to 1983. Over the decades he has had to adapt to Wall Street’s rapid transformations. Like television morphing from crackling black-and-white to digital high-def, Wall Street research has evolved from an academic product focused solely on the US, to today’s instant-message, trading-oriented product, which spans the entire globe. Not everyone has made the leap.

Wien’s most recent move also reflects the changing times. He left Morgan Stanley three years ago to join his good friend Arthur Samberg, founder of Pequot Capital Management, Inc., a $5-billion hedge fund. Samberg and John Mack, once and future CEO of Morgan Stanley, who joined Pequot after leaving Credit Suisse, had both worked with Wien over the years and thought he would be the perfect public face for the hedge fund—which might sound to some like an oxymoron. (Ironically, Mack left within weeks of Wien’s arrival, to return to Morgan Stanley.)

Weary of the media’s demonization of hedge funds as secretive and unapproachable, Samberg feels it is time for his industry to become more open. “My belief is that hedge funds are legitimate investment vehicles,” he says. “It’s important to position hedge funds as high-quality investment organizations, and to start to talk to the press on the big issues, though not on specific names like some of the young fellows do.”

From Wien’s point of view, the transition affords him the opportunity to continue doing what he loves. And, like so many others, he has followed the money. His move also reflects a fairly negative view about the outlook for Street research.

“In the 1980s and 1990s, research compensation began to soar,” says Wien. “Of course that was partly due to the role of investment banking. All of a sudden analysts were making much more than other professionals like doctors or lawyers. Now the Spitzer rules separating investment banking from research have driven analyst compensation down. I think research is in a secular decline, and going lower.”

Wien’s migration to the buy side has been seamless. Though he continues to travel extensively, meet with clients, and publish frequently, Wien also participates in numerous not-for-profit activities.

Not surprisingly, he serves on several investment committees for organizations including the Pritzker Foundation and the John D. and Catherine T. MacArthur Foundation. Sue Manske, who is the MacArthur’s chief investment officer, has worked with Wien for five years, and describes him as instrumental in formulating strategy for the $6-billion fund. “He’s been a big proponent of investing in emerging markets and Asia, which we did very successfully in 2005 and 2006,” says Manske. She adds that he has also been an enthusiastic advocate of investing in hedge funds, while cautious about fees and returns.

“Byron is very practical. His thought process is deep and rational; he doesn’t mince words. He says what he thinks but also listens to others. At the end of the day he respects what we do and gives us the latitude to manage the fund.”

Late last year Wien tacked on an addendum to his Ten Surprises: a list of Five Sure Things. He jokingly told an audience, “I’m getting older. I can’t afford to wait around anymore, so I have to invest in sure things.” Among those were predictions that oil prices would exceed $100 a barrel, that gold would hit $1,000, and that the price of cotton would top 80 cents a pound. Why the outlook for cotton? In part, he explains, because acreage diverted to corn will shrink supply, and partly because most of the world’s population growth will be in warm-weather regions where people wear cotton.

Wien enjoys his new digs at Pequot. Unlike many of his contemporaries, he seems to have little interest in scaling back his activities. “He loves what he does,” says Anita. “He’s stimulated by the environment. And he doesn’t play golf.”

Retirement, then, is not on the table for Wien. Arthur Rock sums it up: “He’ll retire dead. He enjoys it too much.”

–Liz Peek has been a columnist for the New York Sun and a partner of Werheim & Company, and formerly held the CFA® designation.

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