Gordon Getty, son of late oil tycoon J. Paul Getty, has spent his 72 years pursuing interests ranging from musical composition to economics. And his $2.2 billion of inherited wealth has enabled him to turn many of his pet ideas into actual projects in the worlds of philanthropy and business.
After many years of overseeing the investments of his various foundations and trusts, he wrote a paper, published by the Brookings Institution in 1993, arguing that inflation could be solved by replacing national currencies with mutual funds.
Afterward, he began thinking about how to solve one of mutual funds' most common problems: raising cash to pay shareholders who redeem many shares of a fund at once.
The answer came to Getty while on safari in Africa in 1997 -- around the same time he began composing Young America, a piece for chorus and orchestra released on CD this year. The idea was to offer a pool of cash that mutual funds could tap into when they receive redemption orders.
The pool would buy the redeemed shares, giving the mutual funds cash to pay the shareholders. Later, when the funds received subscription orders, they would buy back the shares from the pool, which would make a gain or loss on the sale. Funds would be required to buy back all the shares within 28 days. For this service, the pool's managers would charge a minimum fee of 0.15%.
In 2002, Getty turned the idea into a San Francisco-based startup, ReFlow Management Co. This fall, ReFlow will attempt to raise its first capital pool from outside investors -- up to $250 million. BusinessWeek Correspondent Justin Hibbard spoke with Getty on Aug. 22 and again on Sept. 15 about ReFlow, his philanthropic work, and his interest in music. Edited excerpts of their conversation follow:
How did you get the idea for ReFlow?
It just kind of came to me. I had been mulling over the problem for a year or two. Open-end mutual funds have to honor orders every day -- subscriptions and redemptions. Where do they find the cash?
And this idea was just so darn obvious I'm amazed it took me so long. But no one else seems to have thought of it. The basic insight is it should be a lot cheaper to trade a single security -- namely a mutual-fund share -- at a known price and in a known quantity than to bargain for a whole portfolio of securities in a shifting market.
The returns from ReFlow's capital pool come from buying mutual-fund shares and then selling them back at a profit. Inevitably, some will sell at a loss. What kind of performance can you expect from the pool?
Our assumption has been that we would neither gain nor lose on our portfolio return compared to other investors in similar risk assets, but that our alpha would be the fee income. And by the way, that is what our two years of experience with clients have shown.
You're sort of a self-taught economist, right?
I'm an economist if the janitor is. [Laughs.]
Did you study anything in particular that influenced your thinking about ReFlow?
The questions wouldn't have occurred to me. Some of my friends with a background in mutual funds started telling me what the problem was, and I thought about it.
What do you think of the reforms New York State Attorney General Elliot Spitzer has imposed on the mutual-fund industry?
I'm a huge Spitzer fan. I've contributed the max to his campaign, and he has spoken at my house.
You're also a self-taught computer programmer, I understand.
I was fiddling with Fortran [programming language] 30 or 40 years ago, and Basic and stuff like that. Then I kind of let it all lapse and didn't get back to it until I was here [at ReFlow], and I said we need to model this stuff.
I asked around, and Mathematica was the most powerful program for this purpose. I wrote a modeling program myself in Mathematica, which is a fiendish language. I have about a 20-pager that models what could happen [with ReFlow]. I also wrote some programs in Java, but they were pidgin Java.
Is it safe to say you are mathematically intuitive?
I am numerate. I'm comfy with the calculus.
Do your skills in musical composition, computer programming, and business stem from a common source?
I can't find a connection. The business is more urgent as a rule, so when a crisis happens in business or something that needs my attention, it gets my attention. With composing, you're hot when you're hot. There are times when you're ready, and times when you're not.
Business is not as demanding as composing. It doesn't take as much out of me as composing.
Tell us about the CD you released in July.
Young America is all my works for chorus and orchestra except Joan and the Bells , which came out a few years ago. I had written the verse and kept putting off starting the composing, and finally I couldn't put if off any more, so I started writing the music.
About four or five days into writing the music, September 11 happened. I just kept composing. I still had to come down here [to ReFlow] and spend full days at the office, but all night I'd be composing, and I got the whole thing orchestrated in three weeks.
What's your next musical project?
I've got a premiere coming up in about a month in Moscow of something new. The piece is done, but it's only part of a larger piece. So we'll gradually fill out the rest. It's going to be an opera on Edgar Allen Poe's The Fall of the House of Usher.
What's going to be premiered in Moscow is a ballet suite that I've written for it. The Russian National Orchestra will perform it. We're probably going to start recording and issuing my opera, Plump Jack , too.
What philanthropic activities is the Ann & Gordon Getty Foundation busy with now?
I give mostly to classical music, paleoanthropology, and geochronology, which is dating of old sediments. We support hundreds of different well-established outfits, and it's all proactive. We don't read grant requests. Our panel is expected to know who deserves a grant, and they debate it among themselves.
Our philosophy is to give relatively small percentages of grantees' total budgets, but we give to a lot of grantees, so we're sort of a shotgun, rather than singling out a few and trying to change the way they do things.