How Mesirow Financial Stays the Course

CEO Jim Tyree says his Chicago financial-services firm keeps its footing in the rocky market through conservativism and diversification

Small isn't only beautiful. It often allows you to be nimble. Despite a tough economic climate, tiny Chicago financial services firm Mesirow Financial has increased its business for the 11th consecutive year. CEO Jim Tyree proudly claims that the 65-year-old firm's unquestioned integrity is one major factor in its expansion.

Located in the heart of Chicago, Mesirow is an employee-owned, privately held company with more than 700 employees. Providing brokerage services, insurance brokering, investment banking for mid-tier companies, real estate and private equity investments, Mesirow's revenue from continuing operations grew to $182 million in fiscal 2002, from $177 million last year, and assets under management grew by almost $1 billion, to $4.4 billion.

As head of a typically stable but growing Midwest business, Tyree's perspective is one many executives today long for. BusinessWeek Chicago Correspondent Pallavi Gogoi sat down with him recently to talk about the financial-services industry and today's economic environment. Among other things, Tyree revealed that he's on the prowl to buy a small financial-services company or a local bank. Following are edited excerpts of the interview:

Q: What are you doing to keep growing in today's drab economic environment?


I'll tell you, whatever it is today, is gone tomorrow. And just as our business is diverse, I believe that our clients need to diversify. We've never been a firm to advocate to our clients to chase a particular asset class or a particular investment or the next coming thing.

So, in the investment side of things, we make sure we're covering an appropriate asset collection, including real estate and risk management, and equities and fixed income, and alternatives, hedge funds and private equity. It's a traditional conservative approach. I never have an all-good day. But I also never have an all-bad day.

In the heydays of 1998 and 2000, people were storming all over the place to get rich quick. We kind of plodded along. In good times, we watch where the next pitfall is going to come from. We've had steady growth for a long period of time. The firm doesn't lose money.

Q: What role has technology played in your business?


In the later days of the bubble, everybody thought technology would take over and rule the world. There were guys in this town saying that General Electric is going to be extinct and Sears is going the way of the dinosaur, because somebody could put a whizbang screen and create it on the Internet. That's nonsense.

I would never bet on technology guys who didn't know anything about manufacturing. I'd much rather put my money on a manufacturing company that learned technology. He's going to beat that pure technology guy all the time.

Q: Did you have a lot of exposure to the technology industry?


We [had some], but not a lot.

Q: Even if you weren't that exposed, the bursting of the tech bubble has hurt the broad economy. How have you positioned yourself today?


Anybody that expects the 1990s to repeat itself is in for a huge disappointment. It's not coming back. If we think 5% growth and 4% unemployment is the norm, that's not happening. We probably won't see that in a very long time. But if you're talking about 5% to 6% unemployment or 1% to 2% growth and more reasonable valuations...I think we'll be there in the next year. I think this generation needs to recalibrate what they think the world is.

Q: How is that recalibration affecting your advice to clients?


[We tell them to] ratchet down all expectations.... [If they had expected] the portfolio to generate 8% to 10%, maybe you've got to think about of that as 5% to 7% now.... I believe that private clients are the worst hit in terms of their expectations. They need some unbiased research. The sell-side research goes the way of the dinosaur. There are structural changes in the way advice is given, and firms like us will benefit.

Q: How does the threat of a war with Iraq affect the economy?


Uncertainty is huge in terms of the economy and my business. It is the enemy of growth, but a lot of this is already built in. The Iraq and the Middle East issue has been out here for some time now. War is inflationary and certainly causes a difficult time in the economy.

Q: There's a sense that since the world economy is so beaten down, a war would make it even harder to bounce back quick.


I certainly agree with that. Economic investments have to change. It will change everyday life. A war will be hard to contain. People are concerned about how widespread it gets. An economy that's moving toward the service sector...can get uprooted in a second.

That will further hit the tech sector, which hasn't seen the bottom yet. Even in my micro world, if we were spending $20 million in technology a few years ago, I'm spending $10 million now. And if everybody does that, we haven't seen the bottom yet. However, in our business, now is the time for expansion -- and we're exploring a few small acquisitions to build our business.

Q: What kind of acquisitions?


Acquiring other investment-management firms. Maybe even acquire a bank.

Q: Local?



Q: Will you get into retail banking?


Not in terms of branches. It will be a bank, which like the firm will [offer] very high-quality personal service. We say to our clients: "We'll walk your dog, whatever it takes."

If you look at all of our markets -- individual, corporate, and institutional -- we have a whole package of services for our [customers] that revolve around estate planning, investment advice, insurance and real estate. For midsize corporations, its investment banking and insurance and money-management work. One thing that each one of those markets utilizes is banking services, [so it's] a perfectly natural fit for us.

Q: Insurance rates seem to have gone up everywhere after September 11 -- not just for trophy buildings, but workers' compensation and directors' and officers' insurance. What are you seeing?


Absolutely every part of insurance...has skyrocketed. For example, we have a client that makes $5 million bottom-line with $2 million worth of liability insurance. If their insurance company says that costs will go up from $2 million to $5 million, they've got real problems. And those numbers aren't unusual, especially in transportation and real estate.

Q: Are companies taking on more risks themselves?


Oh yeah, a lot of companies are doing that. Some folks might have carried a $50 million umbrella policy and are now working with a $5 million umbrella. That's happening a great deal.

Q: How will corporate governance be affected if small companies can't get appropriate directors' and officers' insurance coverage?


You're going to see many boards shrink. You're going to see a lot of retirees -- it will take so much time that you'll see fewer guys on multiple boards.

CEOs will have to pay more attention also [after the] Aug. 14 signing of their financial statements. Especially if there's a trend toward fines and jails. I applaud it -- it's important to get credibility. This is a new reality, and if things are certified, you have to be able to believe it.

Q: Today's focus on corporate governance has put a spotlight on CEO greed and management excesses. Do you think we're going to get rid of those now?


The pendulum has swung so far in that direction, it's ridiculous. The things that are happening today...don't pass any smell test.... The excesses are absolutely insane. I've watched countless numbers of guys who worked hard through their whole life and were very successful at building their business. [They] got to the very top and forgot all the principles that got them there. All of a sudden, they're different human beings.

I believe that the greed is real [and] needs to be eliminated, punished. If not, you're going to create corruption and haves and have-nots. I believe we have a system that does this. Sometimes, the system doesn't work fast enough or get the right people. But it's clear to me that we need to move real strong in that direction.

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