Money manager Aletheia Research and Management Inc. continues to see significant drops in its assets under management from client terminations and market losses. The company also lost its new president, hired to help stabilize the firm, after just seven months on the job.
The Santa Monica, Calif.-based boutique manager, whose specialty is large-cap growth equities, reported assets of $3.39 billion as of Sept. 30, according to a 13F filing with the Securities and Exchange Commission. That figure was down 39% from the $5.598 billion Aletheia reported to the SEC as of June 30.
Aletheia General Counsel J. Jorge deNeve said the SEC filings understated Aletheia's total assets: wrap accounts, for example, were not included. He said the company's AUM was $6.9 billion as of June 30 and $4.4 billion as of Sept. 30. There was a slight recovery in October to $4.8 billion, the last month that Mr. deNeve was able to calculate.
But no matter which numbers are used, the manager has lost significant assets.
Losses since the beginning of July include:
- a $350 million large-cap growth mandate for the $49 billion State of Michigan Retirement Systems, Lansing;
a large-cap growth account of between $50 million and $75 million for the $1.75 billion Ewing Marion Kauffman Foundation, Kansas City, Mo.;
- an approximately $18 million equity mandate for the $890 million Wayne County Employees' Retirement System, Detroit;
- a $13 million large-cap growth mandate for the $336 million City of Fort Lauderdale (Fla.) General Employees Retirement System;
- a $13 million large-cap growth mandate with the $138 million Sarasota (Fla.) Police Officers' Pension Plan; and
- an approximately $5 million all-cap value portfolio for the $23 million City of Pinellas Park (Fla.) Police Officers Pension Board.
Aletheia also has sustained major losses on its retail platform. The private wealth management group of Goldman Sachs took Aletheia off its recommended list for brokers over the summer, said spokeswoman Andrea Raphael. Knowledgeable sources said Aletheia will lose at least several hundred million dollars because of Goldman's decision.
Aletheia also is on the watchlist at Morgan Stanley (MS), confirmed spokeswoman Christy Pollak. And Matthew Card, a spokesman for Bank of America Merrill Lynch — another broker that has Aletheia on its platform — said: “We do not have anything called a watchlist, though we are watching this. As with all of our platforms, we continue to monitor developments with our investment partners in order to ensure our offering is in the best interest of our clients.”
Mr. deNeve said many of Aletheia's institutional clients remain committed to the money manager, but for confidentiality reasons he could not name them. As for retail investors, Aletheia before the start of 2011 was on 10 “platforms and only one of these platforms made a decision to move away from Aletheia in 2011, which they are doing over a seven- to eight-month period.”
Clients and consultants say a variety of factors have contributed to the equity manager's continuing woes: subpar investment results in its largest mandate, the Aletheia Growth strategy, a large-cap strategy that comprises 83% of the company's assets under management; legal disputes between Peter J. Eichler Jr., the firm's founder, chairman, chief investment officer and CEO, and various other stakeholders in Aletheia; and negative publicity stemming from a $400,000 settlement with the SEC in May. The SEC had charged Aletheia executives with failing to tell potential clients that the federal agency had cited the firm for deficiencies during examinations.
The firm also has lost its president, Steve Olson, a former U.S. attorney and securities lawyer, who was hired in April. His last day was Dec. 1. Mr. deNeve said in an interview that Mr. Olson left to accept an unexpected opportunity to become deputy chief of staff and senior adviser to Commerce Secretary John Bryson.
Also departing Aletheia was David Bunzel, one of the firm's three portfolio managers. Mr. deNeve said Mr. Bunzel left at the end of August to focus his efforts on other matters, but continues to be a minority owner of the firm.
Mr. deNeve, who joined Aletheia in April, said the firm has no plans at present to replace either Mr. Olson or Mr. Bunzel. He said Mr. Eichler and Mark C. Scalzo, another portfolio manager, are handling investment decisions and Mr. Olson's duties have been assumed by other personnel.
Messrs. Olson and Bunzel did not return phone calls requesting comment. Mr. deNeve said Mr. Eichler was unavailable for comment.
Mr. deNeve said Aletheia, like other equity managers, has been hurt by the general trend away from U.S. large-cap growth strategies. He acknowledged the legal disputes and publicity from the SEC settlement also affected the firm in term of terminations, but said Aletheia executives have moved past those issues and are confident about the future.
Mr. deNeve added the executives understand that improving investment results is key to Aletheia's turnaround. Aletheia's Growth strategy returned -17.43% for the first nine months of 2011 vs. -7.2% for the Russell 1000 Growth index for the same period, according to eVestment Alliance, Marietta, Ga.
That contrasts with longer-term performance that has put Aletheia as the top manager in the U.S. for its growth equity mandate, according to data from eVestment Alliance. For the 10-year period ended Sept. 30, Aletheia had annualized returns of 8.15% compared with 3.01% for the Russell 1000 Growth index.
Mr. Eichler co-founded Aletheia in 1997 with Roger Peikin, who was chief financial officer, general counsel and executive vice president of the money manager before he was terminated in mid-2010. Mr. Peikin still is a minority shareholder in Aletheia, with a 28% stake. In a lawsuit filed in Superior Court of California in Los Angeles, Mr. Peikin claims he lost his job because he objected to Mr. Eichler's dictatorial style, his mishandling of firm investment money and his handling of the SEC investigation.
Another minority owner of the company, Proctor Investment Managers is suing Mr. Eichler for damages in another dispute over its role in the company's management.
Meanwhile, other Aletheia clients are closely monitoring the company.
Both performance and management issues at Aletheia are of concern to the board of the $239 million St. Petersburg (Fla.) Police Pension System, which has $30 million invested in Aletheia's large-cap growth strategy and $15 million in its large-cap value strategy, said Vicki Grant, benefits manager. She said the plan consultant, Graystone Consulting, Tampa, is doing a full review on Aletheia for the board's February meeting. In the meantime, “they are on unofficial watch,” she said.
One key account for Aletheia — $360 million run for the Oregon Investment Council, Tigard, in Aletheia's large-cap growth strategy — is still in force for now. “Oregon is aware of the historical issues surrounding Aletheia management and we have been diligently monitoring and reviewing them since they were hired four years ago, just like we do with all our external public equity managers,” said spokesman James Sinks. The council oversees the $54.7 billion Oregon Public Employees Retirement Fund, Salem.
Larry Cole, a consultant with investment management firm Burgess Chambers & Associates, Winter Park, Fla., said some of his Florida pension clients are sticking with the manager for now, but the firm's results are being closely reviewed quarter to quarter. “If Aletheia has another bad quarter, they'll probably lose more clients,” Mr. Cole said.
Mr. Cole said two of his clients, the $61 million Fort Myers (Fla.) Police Pension Plan and the $325 million Pensacola (Fla.) General Pension Retirement Plan, are hoping Mr. Eichler will regain his once-successful investment touch.
“It's hard to hang on when their short-term performance is poor, but when you look at their long-term track record you can make a good case to stay,” he said.
Mr. Cole, a consultant to the board of Sarasota Police Officer's Pension Fund, said the issues went beyond performance when the fund's board voted to terminate Aletheia in October. Board members were upset with the poor short-term returns but also because of servicing issues. He said fund executives had to make repeated requests to get information about the specific stocks in their large-cap growth separate account. He said Aletheia officials were only providing a composite portfolio.