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INSIDE II - First Came the Words

A prescient enterprise and its precocious founder, 40 years on.

“The management of money is one of the oldest of the arts and one of the newest of the professions. As a profession, it is changing continuously, so much so that it bears little resemblance to the same field only a generation ago. Perhaps, at one time, it was easy-going and social; today it is fiercely competitive and intellectually challenging.”

With these words Gilbert Kaplan launched Institutional Investor 40 years ago. Much has changed since then, and much of that change, in this magazine and in the financial markets that we cover, was anticipated by the precocious Kaplan. He was just 25 when he thought up the idea for Institutional Investor; he turned 26 in time for its inaugural issue in March 1967. Kaplan got the idea for the magazine while working as an economist at the American Stock Exchange, analyzing scenarios for the future of financial markets and the Amex’s role in them. As it turned out, he would do a splendid job mapping out our future; we won’t hold him responsible for the fate of the Amex, which has been in a long steady decline since.

Kaplan’s analyses revealed the extraordinary force building as more and more money moved into the hands of institutional money managers. He astutely perceived that the professionals managing stocks for, say, an insurance company had much more in common with portfolio managers at a mutual fund than they did with their colleagues at their own firms. II helped to create and define a new profession, giving identity to a group that had not previously thought of itself as a group.

From the beginning Kaplan intended the magazine to be more than a journal for money managers, just as he intended his company to be more than simply a magazine. He anticipated, and planned for, a wide-ranging expansion of editorial coverage into just about every area of finance — from brokerage to capital markets to commercial banking — while he directed a steady push into other products and outlets.

The magazine itself was profitable by the sixth issue of its first year — an auspicious start. Within a year II had hosted its first conference, expecting 250 guests to attend; 1,800 showed up. As Kaplan recalled recently during a conversation at his Park Avenue offices, “One didn’t require an MBA to know that was a good business.”

II rapidly moved into other businesses: newsletters, books, research products. “We were in television, on videotape interviewing analysts, well before it was fashionable,” Kaplan remembers. His vision of how a publishing company could evolve by exploiting multiple media planted the seeds of today’s II, which contains a thriving conference and institute membership business, more than 17 newsletters, nine journals and a growing research sales business, as well as domestic and international editions of this magazine, and Alpha, the hedge fund magazine launched in 2003.

Not all of his ventures panned out. For a time, II published a magazine called Auction in a joint venture with Parke-Bernet Galleries, before it merged with Sotheby’s. That effort ran out of steam, but not before Kaplan, an art lover and serious collector of surrealism, managed to persuade Salvador Dalí, legendary for demanding high fees, to design a cover for the magazine — for free. “My greatest business deal,” Kaplan says.

Wheeling and dealing aside, the most important part of Kaplan’s legacy here was the emphasis he placed on editorial quality, through an uncompromising sense of integrity and independence, a commitment to thoroughness and evenhandedness and an emphasis on first-rate presentation, thanks to production standards that were ahead of their time. “My core value was to somehow combine hard-hitting journalism with a genuine sense of fairness and a clear point of view,” he says.

Under Kaplan’s direction, II did this with a zest and showmanship, a love of language and a fondness for cutting-edge graphics that was lacking in business journalism at the time. Kaplan still delights in recalling the early reviews of his brainchild. Newsweek said II was “breathless with the drama of high finance.” The Financial Times declared that II was regarded as a kind of “financial pornography.”

Kaplan surrounded himself with topflight talent, beginning with II’s first editor, George J.W. Goodman — better known to the wider world by his nom de plume, Adam Smith — and Goodman’s successor Peter Landau, a Newsweek veteran and II’s editor from 1971 to 1991. The magazine became a home for talented writers like Chris Welles, onetime business editor of Life magazine, and Cary Reich, who penned many of II’s signature cover-story profiles and went on to become the biographer of André Meyer and Nelson Rockefeller. Renowned money manager and author Peter Bernstein helped Kaplan launch the Journal of Portfolio Management.

Kaplan’s approach, and the expense it entailed, paid off. During his years at the magazine, II won more than 40 major journalism awards. We were the first — and remain the only — business or financial magazine to win a National Magazine Award for reporting; that honor came in 1983 for a cover story written by Welles on the Drysdale Government Securities bond-trading scandal.

The following year Kaplan sold the magazine to Capital Cities Communications. Though he would remain involved with the magazine for ten more years, in keeping with the terms of the sale, Kaplan’s second career was already under way. To celebrate II’s 15th anniversary, in the fall of 1982, II took over New York’s Avery Fisher Hall, inviting its readers and clients, and though a neophyte with only seven months of formal training, Kaplan made his debut as a conductor, leading the American Symphony Orchestra in Mahler’s Second Symphony before an audience of 2,800. After that heady and well-received performance, invitations came in from around the world for him to conduct this difficult work.

In the years since, II has tried to keep faith with Kaplan’s guiding vision. Walt Disney Co. bought Cap Cities in 1995 and in 1997 sold Institutional Investor to our erstwhile rival, London-based Euromoney, which subsequently renamed itself Euromoney Institutional Investor. We have continued to publish tough-minded analytical pieces, groundbreaking investigations and, we hope, engaging and entertaining narratives. We have been fortunate to have had our work recognized with numerous awards for writing and reporting in recent years.

Finance, we believe, is as much about people as it is about numbers, and that is because finance is ultimately about trust. Individuals make a difference; truly extraordinary individuals can make an enormous, lasting difference. That is one reason we have, over the years, published so many in-depth profiles of major figures in the financial world.

To commemorate our 40th anniversary, we decided to celebrate the accomplishments of the most influential figures in finance since our founding in 1967. We set some ground rules: We decided to honor only the living. This, of course, means that some of the legendary figures of the past few decades had to be excluded: A.W. Jones, who created the first hedge fund; Enrico Cuccia, the puppet master of Italian finance; Walter Wriston, the visionary leader of Citibank; André Meyer, the brilliant Lazard deal maker; Sigmund Warburg; Gus Levy; Michael Von Clemm . . . the list could go on.

Then we had to decide what we meant by “influence.” We concluded that it was something more than amassing power or doing a big or difficult job well. We looked for individuals with vision and creativity whose activities led to critical changes in financial markets. We also favored influences that were positive; we were not interested in cautionary tales. To be sure, a few of the individuals we selected have been brushed by scandal. We felt in those cases that their contributions far outweighed the negatives. Although Michael Milken spent time in prison following a plea bargain with U.S. authorities over certain trading matters, we concluded that it would be next to impossible to imagine the modern financial world without his extraordinary promotion of junk bonds.

Beginning on page 79 we present the 44 individuals we have selected, from former U.S. Treasury secretary Robert Rubin to U.K. prime minister Margaret Thatcher; from academic theorists and Nobel laureates William Sharpe, Myron Scholes and Robert Merton to euro-market pioneer Hans-Jörg Rudloff; from hedge fund eminence George Soros to the brilliant Saudi investor Prince Alwaleed bin Talal. And many, many more. We hope that you enjoy reading the interviews we did with them, as well as the essays that some of them graciously wrote for us.

The package was overseen by Contributing Editor Jim Sutherland, with assistance from staff writers and editors. Art Director Nathan Sinclair designed the look, working with Photo Editor Daniella Nilva.

Focusing on individual achievement helps give a sense of the living, breathing world of finance. As the financial world has grown up over the past 40 years and companies have become far bigger, far more powerful and global, it has lost some of the small-town feel it once had. With that has come a loss of familiarity.

In our recent conversation Kaplan noted the passing of this era but, ever the editor-in-chief, was quick to note the chance for a revival: “Personality vanished from the financial business as institutions became more the visible force and individuals were blended in,” he observed. “Now, with private equity and with hedge funds, you have some fascinating people in the business — many fresh personalities to write about.”

Few people exemplify the power of personality or embody the association of an individual with an institution as much as Gilbert Kaplan does. Last month at an event in New York City, he ran into Bob Rubin, who mentioned that he’d been interviewed for this issue.

“I spoke with one of your reporters the other day,” Rubin said.

Kaplan told me he was amused that although 23 years had passed since he had sold the magazine, Rubin still regarded II as Kaplan’s.

Well, in many ways it still is, Gil.

We’re doing our best here to put out a magazine that lives up to your standards and your expectations. And, as the fellow who spoke to Rubin, I can assure you that each of us is delighted to be identified as one of your reporters.