Masters of Money: Parametric Portfolio Associates

Brian Langstraat, chief executive of Parametric Portfolio Associates, doesnt try to predict returns in any form, instead focusing on a longer-term strategy.

If youre looking for a money manager with a battalion of analysts trying to outsmart the
market and spot the next hot stock or sector, Seattle-based Parametric
Portfolio Associates is probably not the place for you.

Qualitative research? We dont do any, says Chief
Executive Brian Langstraat. Parametric is a very unique firm in that we have
no resources and no professionals dedicated to the effort of deciding
qualitatively on markets, companies, interest rates, economic cycles. We dont
try to predict return in any form. I think that makes us pretty unique in the
marketplace. … All of the value we add is in longer-term strategic insights and
then in customization and transparency and providing exposure to markets and
asset classes and particular segments of markets in the most efficient way
possible.

What you will find with Parametric is repeated use of terms
like structured and rules based. Parametrics approach, the company says
several times on its website, is engineering portfolios with explicit risk and
return targets and continually measuring and managing the impact of relevant
costs. Says Langstraat, There has been and continues to be a long-term
secular trend toward index-based investing in the marketplace, which is
probably the ultimate in transparency and rules-based investing and focus on
fees and costs. Many of the products that Parametric offers are enhanced
versions or improved versions of indexes.

That conservative approach makes Parametric the No. 2
manager on a list of the states top firms (see list), with $33 billion in
assets under management.

In 2009, clients seemed to like that method just fine.
Langstraat says the markets rally had something to do with the jump in assets
under management. But he adds the firm has had a consistent record of asset
inflows for several years. Were seeing institutional flows into our
emerging-markets productpension funds, endowments, foundations. We saw for the
first time in 2009 significant flows from European investors, bearing fruit
from some of the efforts weve had to expand our distribution into Europe. 2009
was a year of fairly broad-based growth in terms of sources of funds.

Parametric markets its products mainly to wealth management
advisers, while Boston-based Eaton Vance, which owns a majority stake in the
company, sells them to mutual funds and institutional investors in the United
States and Europe. An affiliate company, Parametric Risk Advisors, based in
Westport, Conn., concentrates on options and derivatives.

Langstraat says Parametric, which already does structured
portfolio investing in emerging markets, is now working on extending that
approach to the developed world outside America; its also looking at
rules-based investing in commodity markets. Because were not trying to get up
every day trying to develop new insight into the tactical valuations and growth
prospects, its innovation in these longer-term exposure areas that will
continue to drive our growth, he says.