Through the turbulent trials of Wall Street, Chicago’s leading private investment firm, William Blair & Co., has managed to stay in the quiet eye of the storm. The firm avoided the siren call of mortgage-backed securities, completed several high profile mergers and acquisitions in the past year, and is hiring as its competitors lay off employees.

William Blair's vice chairman, E. David Coolidge III, says the company’s strategy of sticking to its conservative path and putting clients’ long term financial wellbeing ahead of any get-rich-quick securities helped to keep Blair prosperous while bigger firms went under.

“Many of our competitors borrowed quite a bit of money to hold lots of securities and make all sorts of investments,” he said in an interview. “It really became a problem for them because they lost their ability to fund and their ability to continue to borrow that money and it caused a great deal of stress.”

Since 1935, William Blair has provided asset management, underwriting, institutional sales and trading, and advice on mergers and acquisitions. At the end of 2007, the total assets of the firm were nearly $742 million.

“William Blair doesn’t have any asset impairments,” Coolidge said. “It doesn’t have any writedowns of values of securities that we hold. That is very important.”

David Stowell, a clinical professor of finance at Northwestern University's Kellogg School of Management, said that William Blair has a niche in the mid-cap business market in the Midwest, which he defined as businesses having a market capitalization of $1 billion or less.

“They compete well in that area,” Stowell said. “They are unencumbered with some of the major risks that the bigger firms that have large trading operations have right now. They don’t have, like big firms like Goldman Sachs, Morgan Stanley, and JP Morgan, massive capital that is committed to supporting trading desks that are involved with mortgage backed securities and other securities that have been chronicled as causing problems and huge losses for some of these big investment banks.”

John Miller, a clinical associate finance professor at the University of Illinois at Chicago, commented that William Blair is a very conservative firm, especially when it comes to entering new markets.

“For this reason, I believe the firm was largely able to avoid the subprime mess that has afflicted every other investment bank,” Miller said. “William Blair and its people seem to be a group that excels at its core competencies and don’t feel the need to move into business areas where they lack expertise.”

Miller’s work experience at several large investment companies such as Lehman Brothers, Bear Stearns and Citadel Investment Group leads him to believe that the culture at William Blair is more friendly and supportive than what one generally encounters in financial firms.

“This leads to less individual grandstanding and more focus on steady results,” Miller said.

In fact, William Blair is enjoying a good year.

“We can function at lower levels of revenue than we are currently experiencing and remain profitable because of that structure,” Coolidge said. “At the end of the year, maybe bonuses won’t be as big as they have been in the past, but there will still be bonuses and we will be quite profitable.”

The nearly $12 billion acquisition of the Chicago Board of Trade by CME Group Inc. was one of the biggest M&A deals William Blair advised on in 2007. The Chicago Mercantile Exchange has been a client of William Blair since becoming a publicly traded corporation in 2002; Blair managed its initial public offering. Their close working relationship and William Blair’s knowledge of the CME stock helped to complete the acquisition, Coolidge said.

“They’ve come to rely on our judgment, our insight, and our abilities to counsel with them,” he said.

This year William Blair handled the $3.3 billion merger of Folgers Coffee Co., a subsidiary of Procter & Gamble Co., with J.M. Smucker Co. Blair also advised on the $23.1 billion acquisition of chewing gum titan Wm. Wrigley Jr. Co. by confectionary powerhouse Mars Inc.

But, reflecting Wall Street’s distress, William Blair’s mergers and acquisitions business has declined 25 percent in the nine months ended Sept. 30 versus the year-earlier period. Buyers tend to be more corporate and strategic, said Coolidge.

“The financial buyers have found that they can’t find the loans to do the transactions,” he said.

William Blair was listed as No. 7 on Crain’s Chicago Business Best Places to Work annual list in 2008. The firm currently has more than 1,000 employees worldwide and 173 of those are partners or principals in the firm. Sixty percent of employees are professionals and the remaining 40 percent are support staff. No layoffs are planned.

“A big expansion is not underway, we are definitely slowing down the hiring,” Coolidge said. “But where there is a need…we will look to hire to make sure we’re staffed appropriately to serve our clients.”

Coolidge said that there are probably some mortgage-backed securities in fixed income accounts that the firm manages for clients, but these instruments are not having a material impact. William Blair does not itself own any mortgage-backed securities, said Coolidge.

“Every security has been affected by what is going on,” he said. “The secret is to make sure that the securities you’re in are the least affected…the highest quality and that’s where we’ve gone. We’ve tried to pick out those that we feel are going to survive.”

Within the asset management department, where William Blair offers financial planning, wealth management and mutual and private-equity funds, assets under management are down 20 percent this year to $40 billion from their record peak of $50 billion last year. Coolidge cited “market declines.”

Despite the turmoil in the markets, Coolidge said only a “handful” of clients have left the company.

“Our customers have been very loyal and have stayed with us right through all this,” he said.

Last year was a very good year for William Blair’s equity offerings, with the market peaking in October 2007, said Coolidge. The company is now down 40 percent from its 2007 level. This year the firm has handled follow-on offerings for local companies including PrivateBancorp Inc. and material science company Rubicon Technology Inc.

Coolidge said the firm’s equity offerings in the first half of 2008 were a “fair number but not the same pace” as last year. The second half comparisons will be “quite dramatically different,” he said.

Deals done by the underwriting department, which handles initial public offerings, follow-on offerings and debt offerings, declined 15.9 percent to 95 through the third quarter compared with 113 deals in the year-earlier period.

In the long term, business will be good because competitors have gone out of business or have consolidated, Coolidge said.

“The landscape has changed and our view is that we should emerge with a bigger market share than we had before this difficult period,” Coolidge said.

William Blair’s institutional sales and trading department was ranked no. 2 in this year’s Institutional Investor magazine among the best U.S. small- and mid-cap equity sales forces. The department serves more than 1,900 institutional investors such as mutual funds, investment management firms, and banks worldwide through its offices in the United States, Japan and Europe. It was ranked no. 5 last year.

The stable foundation of the firm is what makes Coolidge optimistic for the future of William Blair.

“We’ve survived for 73 years by sticking to our knitting,” he said, "focusing on our clients' needs and keeping a very conservative financial structure. I don’t see any of that changing.”