Q&A: WILLIAM WILBY: "SANDY WEILL, MAYBE HE’S A BRILLIANT GUY"

William Wilby’s training for international investing began when he was a toddler. “I lived all over the place because I was a service brat,” says OppenheimerFunds Inc.’s senior vice president and director of global equity investments.

Mr. Wilby, now 54, moved with his mother to Japan in 1945. His father, an Army engineer, was overseeing construction of an air base on the northern end of Honshu, the main Japanese island. He learned to thrive in a high-pressure environment much later – as a 1st Division infantry platoon leader in the Vietnam War.

“The most focused I’ve ever been in my life up until getting into money management was the year I spent in Vietnam,” he says. But he isn’t all high intensity. He did take two years off after that war to teach skiing – in Austria and then in Keystone, Colo.

He came to Oppenheimer in 1991 after stints at the Federal Reserve, Brown Brothers Harriman & Co. and as a pension fund manager at American International Group Inc. and Northern Trust Corp. Returns in his global growth fund as well as the other global portfolios, whose managers report to him, helped earn Oppenheimer Morningstar Inc.’s designation as the best world fund manager over the past 10 years.

Mr. Wilby likes to find companies out of favor with Wall Street that fit various sectors, or themes. Among his favorites are the telecommunications and media industries, computer services and companies undergoing restructurings.

QYou just got back from Europe; did you like what you saw?

AEurope is in the midst of a major business renaissance. There’s just an incredible turn in attitude toward shareholders. If you wanted to buy a European stock in the early 1980s, a brokerage report, whether it was in a foreign language or English, was virtually unintelligible. Recommendations that you got from brokers came in the form of whispered secrets of insider information. (In a bad Teutonic accent) Ve know dis company. Ve have seen de accounts. And that’s the way the stocks would be recommended to you.

QWhat changed there?

ACompanies gradually have been forced to open up – at first by the advent of global online services in the mid-1980s and the entry of U.S. pension funds in the late 1980s, and now in the 1990s with the entry of the mutual funds in the international business. For years, Germany was called the world’s largest emerging market, because it was virtually a closed market.

QWhat’s the case for Europe when the U.S. market has outperformed it?

AIt’s hard to see (U.S.) corporate earnings growing at the rate they’ve grown over the past few years, whereas in Europe the returns on equity are very low. They’re very early in the process, in the second or third inning. Most of these companies you see in Europe have returns on equity in the single digits. For example, Italian banks are 3% or 4%. The average return on equity in the U.S. is 16%. Even if there’s no top-line growth, their returns and earnings can go up fivefold relative to the U.S. market.

QHow does the euro figure in all of this?

AIt’s the catalyst. One of the reasons these guys have gotten religion is that instead of just their competitors down the road who they’ve all decided to divvy up the spoils with, all of a sudden they’ve got this big guy in Germany who’s going to be moving in on their turf or some guy from France – and everybody’s going to be competing head to head. They’ve got to get efficient. They’ve got to compete for capital. They’ve got to get their stock price up.

I visited a little company in France called Sita – it’s a waste management company. They just bought all of Browning-Ferris Industries Inc.’s European operations. They’re starting to view themselves as operating in the United States of Europe.

QSo what other European stocks do you like?

AThe media area. Canal Plus, they’re the largest pan-European pay television company. They are the first real digital player.

You have all these companies that want to advertise globally. For example, if a U.S. company wants to distribute advertising across Europe as a whole instead of country by country, they’re going to go to Canal Plus, because Canal Plus can deliver a signal in seven countries simultaneously. The stock is beaten down right now. Everybody hates it. They’ve been spending so much money on their digital rollout that they have no current earnings.

QWhat else?

ALadbroke Group PLC. It’s a diversified hotels and gaming company, U.K.-based. They own Hilton International Hotels. And they own betting parlors in the U.K. and a couple of casinos in various other places. Another interesting story to talk about – Bull SA in France. Talk about a dog! An absolutely loathed company. They made a mess. They’ve been losing money for years.

QSo why invest in it?

AThey brought in new management and I think the Groupe Bull story is sort of like IBM five years ago when everyone said it was a basket case. Bull is a mainframe company, like IBM. What it’s doing is transforming itself from a mainframe-based hardware company into a services-consulting company, which is what IBM’s been doing. They’re also one of the world leaders in smart cards. They make a lot of the ATMs in Europe.

We’ve been investors in Credito Italiano, one of the fastest-growing mutual fund managers in Italy. Istituto Bancario San Paolo di Torino – that’s the largest mutual fund manager.

Also a little-known company we’ve owned probably for five or six years called MLP (Marschollek Lautenschlager und Partner AG) in Germany, a financial planning firm. They go into the German graduate schools and they meet with young doctors and lawyers right before they get their degrees and try to set them up with a financial plan for life to include the sale of mutual funds, insurance products, all that sort of thing. They’re growing like wildfire. We’ve sold it, it’s gotten way too expensive. But it’s a classic example of investing in a theme area.

QDo you like anything in Eastern Europe?

ARussia’s very interesting. But you’re really speculating that Russia’s going to put in place a legal system to protect shareholder interests. There are some real issues about whether emerging markets will ever deliver earnings-per-share growth in line with their economic growth.

If you look at Singapore, for example, since 1945 it’s grown 7% or 8% of real gross national product. The U.S. growth has been 2% to 3% a year. (Mimicking his peers: ) “That’s why the Asian Tiger is the greatest place in the world to invest, blah blah blah.”

In Singapore, overall corporate profits grew in line with overall GNP. On the other hand, they’re continually issuing shares. So, if net income is growing 8% to 10% a year and the number of shares outstanding keeps growing, earnings per share goes nowhere. Anyway, the key is not whether the economy’s going to grow but whether the capital needs and demand for Western money are so high they will continue to dilute their returns by equity issuance.

QWhat about the broader picture in Asia?

AMy sense of the Asian crisis is we will go through three phases. The first is a financial collapse. The second phase is the economic collapse. The third phase is the political and social economic restructuring. My guess is we’re in the third inning of the second phase. And the economic collapse is going to last at least another couple, three years – and maybe longer.

The template for Asia is Japan. People were saying in 1989 the problems there would only last a year or 18 months. Nine years later and we’re still not out of it. And it’s gotten worse.

American investors in Japan are throwing in the towel. Two years ago people thought you were light in Japan if you had 20% of your money there. Ludicrous.

QWhat about Travelers Group buying Nikko Securities Co.?

ASandy Weill, maybe he’s a brilliant guy. He’s made a lot

more money than I have. But the one thing about Sandy Weill is

he did not grow up or live in

Japan. My sense is that a lot of these investors are not real clear

on what they may be getting into.

I may be proven totally wrong.

I went there in February. I visited 12, 15 Japanese companies. I

came back and said it’s still too

early.

QHow about Africa?

AThe markets are too small. I like South African Breweries, though. It’s the fourth-largest brewery in the world. It’s almost as big as Budweiser.

QWhat about Latin America?

AI love Latin America. Latin America has been through its dark decade in the 1980s. The process of political and social restructuring is well along, and the valuations are some of the cheapest in the world.

I think that Brazilian companies are some of the best-managed companies in the world. Banco Bradesco SA; Cervejaria Brahma – another brewery – it’s right up there in the top five with Budweiser and Heineken. I like the telephone sector in Brazil, because of the privatization process. Our favorite one is Telesp SA, the Sao Paulo telephone company.

VitÆ

William L. Wilby, 54, senior vice president,

OppenheimerFunds Inc.

Oppenheimer Global Growth Fund (assets $5.58 billion) returns: year to date, 12.46%;

1-year, 17.46%; 3-year, 19.88%; 5-year, 18.84%

Peer average: year to date, 12.40%; 1-year, 10.83%; 3-year, 15.98%; 5-year, 14.61%

Standard & Poor’s 500: year to date, 17.50%; 1-year, 29.78%; 3-year, 30.15%; 5-year, 23.28%.

MSCI EAFE Index: year to date, 13.08%;

1-year, 2.75%; 3-year, 8.39%; 5-year, 8.01%

Returns through June 26. Sources: Morningstar, MSCI