Over a lunch of gourmet sandwiches, salad and dessert, Benjamin S. Schapiro and Thomas R. Hitchner served up a sales pitch to two Mitsui & Co. Commodities Corp. executives.
The two venture capitalists, who in December opened a private investment business, QuestMark Management Co., wanted Mitsui to pump at least $5 million into their fund. And their message was convincing. They talked about their strategy, their industry contacts and their well-connected board.
"The real priority is getting excellent returns," Schapiro told his guests. "We want to serve up enough deals and serve up that fat pitch."
Apparent throughout the meeting was their nearly 50 years' combined experience, and how they did business at their former company, whose creed was: "Client first, firm second, individual third."
Schapiro and Hitchner are proving that there is life after Alex. Brown.
Since leaving the Baltimore investment banking company in November, Schapiro and Hitchner have worked 80-hour weeks, met with investors across the country and in Europe, and spent countless hours poring over financial data of companies that look like promising investments.
In six months, their fund, QuestMark Partners L.P., has raised $221.6 million from about 60 investors, including New York-based Rockefeller & Co.; Artal Luxembourg S.A., an offshore investment vehicle for wealthy European families; and the Johns Hopkins Health System.
"I couldn't be happier with the way things are going," Schapiro said. "I am working my butt off."
Baltimore was stunned April 7, 1997, when Alex. Brown & Sons Inc., the country's oldest investment banking house, with roots in Baltimore that went back about 200 years, agreed to sell to New York-based Bankers Trust Corp.
In November the following year, Bankers Trust was acquired by Germany's largest banking company, Deutsche Bank AG, meaning Alex. Brown had its second parent in 15 months.
Since the mergers, scores of traders, brokers and executives have left Alex. Brown tojoin competitors. Schapiro and Hitchner struck out on their own, and they aren't the only ones.
Thirteen months ago, a group of Alex. Brown employees and directors acquired from Bankers Trust an investment advisory operation, Alex. Brown Capital Advisory & Trust Co. It has been renamed Brown Investment Advisory & Trust Co., and it is on a tear.
It manages $3.74 billion in assets for institutions and wealthy families, up nearly $1 billion since the buyout. In addition, it opened two mutuals funds in June and has hired several top investment experts, some of them from Alex. Brown.
"I think it is going great," said Michael D. Hankin, president and chief executive officer of Brown Investment. "We have gotten a lot of new clients."
Hankin's group began planning to strike out on its own the day the merger between Alex. Brown and Bankers Trust was announced. It found an ally in A. B. "Buzzy" Krongard, a former Alex. Brown chairman, who lobbied on their behalf.
The small group posed little threat to Bankers Trust, and 10 months after the merger was made final Sept. 1, 1997, nine directors and 70 employees left.
"It was exciting," Hankin said. "We did not have a big party. We got to work."
There were few changes. Employees worked in the same Alex. Brown building, worked with the same people and dealt with the same clients. But one change was noticeable.
"For the first time in a year, we didn't have to worry about being merged into a New York bank," Hankin said. "That is a big relief."
Brown Investment's strategy is to have a manageable number of large clients so that it can spend more time with each. The company manages assets, conducts estate planning and sets up trusts for its customers.
"That is what we are in the business of doing, custom-tailored [money] managing," said William Paternotte, chairman of the company's investment committee. "In our approach to serving high-net-worth clients is to provide them with a high degree of customized service and not off-the-shelf, or cookie-cutter, approach."
New fund
Brown Investment is expanding. It recently opened BIA Growth Equity Fund, which invests in large-company stocks, and the BIA Small-Cap Fund, which invests in small companies.
The company has about 350 clients, about 50 percent of them in the mid-Atlantic region. The average client invests $11 million with the company, Hankin said.
Since the buyout, the company has hired several key people, including Paternotte, who most recently was chairman of BT Alex. Brown's investment committee.
He joined because he wanted to be with a smaller company, he said.
"When a firm gets as large as an Alex. Brown, it is now part of a global bank. It is very hard to retain that sense of intimacy and closeness," he said. "We are in control of our own destiny."
His belief that Brown Investment could survive on its own was reinforced when the stock market plunged last summer before he joined the company.
Strength demonstrated
"If ever there were an opportunity for clients to express their concern, that would have been it, and yet virtually no client turnover occurred," Paternotte said. "It was very compelling evidence to me of the strength of the firm."
Stacked up against other asset management and trust companies, Brown Investment is very small, but James Hardesty, president of Baltimore-based Hardesty Capital Management Inc., who oversaw Mercantile Bankshares Corp.'s personal and institutional trust divisions, thinks it can survive.
"They clearly have some talented people," he said.
Hardesty said banking mergers in Baltimore and the region should help the company pick up clients. "There is a vacuum being created in the market," he said. "All that is really remaining is the aircraft carrier Mercantile and a battleship Allfirst. They [Brown Investment] should really benefit if there is a change of control in Mercantile and Allfirst."
Hankin expects the company to grow by 20 percent a year over the next five years. "We think we can continue that," he said. "We have a lot of depth here."
Schapiro and Hitchner are also ambitious.
QuestMark focuses on promising, privately held companies that eventually will go public. It assembles a pool of investors that pump money into those companies in hopes of reaping big returns.
Schapiro, an investment banker since 1966, at Robert Garrett & Co. and then Alex. Brown, came up with the idea for QuestMark several years ago. Bankers Trust was interested but slow to move.
'I had to do it'
"I kept waiting," Schapiro said. "I really wanted this to be a BT Alex. Brown product, but it got to a point where we couldn't tell when they were going to move or not move, and I just decided that I had to do it."
Schapiro approached Invus Group, a New York-based investment firm that specializes in leveraged buyouts and private equity and venture capital financing, which joined him as a partner. Then he persuaded Hitchner, a star investment banker at Alex. Brown who founded the company's private equity group, to join him. In December, they left and started QuestMark.
QuestMark has made an impression.
Chris Jackson, director of alternative investments at Cramer Rosenthal McGlynn, a large New York money manager, said the company reviewed 100 funds, and settled on investing money with seven. QuestMark was one, and Cramer invested $8 million with the company.
'Most impressed'
"I am most impressed," said Jackson, who noted that Cramer manages $4.2 billion. "QuestMark is the only first-time fund we have allocated money to this year. We typically do not invest in first-time funds. I think they are going to get a lot of deal flow."
John McClave, one of the Mitsui executives who met with Schapiro and Hitchner recently, did not invest because the timing was not good. He said he wants to keep in contact with QuestMark, however.
"They should do well," he said. "It is a competitive marketplace, but they have a niche."
QuestMark, which has six employees, has committed itself to investing in a half a dozen companies, including ZapMe Corp., which provides free computer laboratories over the Internet for middle and high schools, and SpeechWorks International Inc., one of the leading providers of speech-recognition technology.
Long hours
Schapiro and Hitchner want to add 14 to 16 companies to the portfolio and are putting in long hours to find the right investments.
Schapiro passed on a Labor Day vacation to work. "I was supposed to go up to the Hamptons," he said. "I canceled that trip. We have got a long way to go."
QuestMark and Brown Investment Advisory & Trust are creating their identities but maintain close ties with their Alex. Brown associates, who pass business to them and, in QuestMark's case, have invested millions in the fund.
Maintaining tradition
Though they are forming new cultures, they draw heavily from Alex. Brown's tradition. QuestMark, for example, plans to give nearly $100,000 to charitable organizations that are investors in its fund. And both companies make sure employees own a piece of the business.
They have also adopted the Alex. Brown "client first" motto.
"Our culture at the core level is very similar to what Alex. Brown was, particularly when it was very small in the 1970s," Paternotte said. "That motto very much reflects how we think of the world."
The companies are thriving in the shadow of their former employer, and they have just begun.
"Yeah, there is life after Alex. Brown," Schapiro said. "But frankly, this is great for Baltimore, to have a prosperous firm growing and contributing back to the community."