Global Investors - Global Investors Inc I have a basic...

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Global Investors, Inc. I have a basic “gut” discomfort with the proposition that investment management as a profitmaking function exists only in New York. Alistair Hoskins, Chairman/CEO, Global Investors, London Bob Mascola, CFO of Global Investors, Inc. (GI), took a last look at his notes as he walked into the conference room where he and the other members of the transfer pricing task force would meet with Gary Spencer, GI’s CEO. The transfer pricing task force supervised by Mascola was meeting with Spencer to discuss the latest transfer pricing models that the task force members had identified. Mascola hoped the meeting would result in a final decision about the transfer-pricing method that should be used to recognize profits in GI’s subsidiaries. Mascola knew that the meeting would be difficult. On repeated occasions, two of the members of the transfer-pricing task force, Alistair Hoskins and Jack Davis, had engaged in heated debates about which transfer pricing model should be selected. Hoskins, the Chairman/CEO of GI’s London office, believed that regional offices – or at least the regional office he led – should be treated as largely autonomous profit centers so that the value created by these offices would be reflected in their financial statements. However, Davis, GI’s corporate vice president of operations argued that virtually all of the investment strategies used to manage the clients’ funds were designed by the research team located in New York. Consequently, Davis believed that the revenues generated by investment activities should be recognized in New York, even if a few investment services were offered by a regional office. The essence of Hoskins’ reply to Davis was that expressed in the epigraph. THE COMPANY Global Investors, founded in 1965, was a privately owned investment management company headquartered in New York. A number of directors and executives based in New York, Spencer among them, held majority ownership of GI’s outstanding stock. GI, started as a domestic equity investment management firm, had grown to manage US$160 billion for a variety of clients, including corporations, insurance companies, public and private pension funds, endowments, foundations, and highnet- worth individuals. GI focused on two activities: investment management (which included research, portfolio management, and trading) and client services (which included marketing and investor advisory services provided to institutional investors and independent brokers/dealers). Although the company initially focused on direct sales to institutional investors (such as endowments and pension funds), it was increasingly selling its investment products through independent brokers/dealers who both served wealthy individual investors and invested in GI funds on their behalf (see Exhibit 1). GI generated its investment management revenues by charging a percentage fee for the amount each of its clients invested in GI funds.
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