BOSTON - Boston Partners Asset Management L.P., one of the fastest growing start-ups in money management, has accumulated more than $5 billion under management in seven months.
The firm, launched in May by a group of former Boston Co. Asset Management professionals, isn't viewed as a traditional start-up.
"This is in essence a large body of investment professionals...doing the same thing they were doing," said Tom Monroe, director of equity research at Frank Russell Co., Tacoma, Wash. "A lot of the things you're concerned about with a new start-up are not there."
Desmond Heathwood, the firm's chief executive officer, noted: "A lot of people who hired us didn't look to us as a start-up." Few firms start out with a group of the size and experience of the Boston Partners team, which had been working together at BCAM for years, he explained.
Boston Partners moved into its offices April 25 and started managing assets on May 8. Executives hoped to have $800 million under management by year end, but surpassed the $1 billion mark in a month. The firm closed 1995 with $5.4 billion in assets.
Staffers only had two weeks to set up systems and get the firm's operations running, but thanks to their experience working together, they knew what to do right away, said Michael Jones, director of client service and marketing.
"There were no strange looks, no people saying 'what do we do now?'" he said.
Managing the growth has not been difficult, since the firm was fully staffed and well-capitalized from the beginning, said Mr. Heathwood. And consultants knew the portfolio managers were used to managing more money than the firm has under management, said Mr. Jones.
Even some clients don't regard the firm as a start-up operation.
"This really isn't a start-up at all. It's a spinout," said Horace J. Caulkins, chief investment officer of the $1.5 billion Financial Institutions Retirement Board, White Plains, N.Y.
After studying the firm for a while, the fund moved $40 million into a premium equity portfolio with Boston Partners, said Mr. Caulkins. The fund had used Boston Co., but took the assets in-house following the departure of Mr. Heathwood's team.
Boston Partners opened with 33 staffers - all from Boston Co. - and has since grown to 45. The 33 original staffers are all partners, and Mr. Heathwood said he expects the firm to remain employee-owned.
But hiring people who didn't work together before could create a culture clash. That's something Messrs. Heathwood and Jones clearly want to avoid, since culture clashes figured prominently in their departure from BCAM.
Mellon Bank Corp. had acquired The Boston Co. in 1993, and industry sources said there was friction between BCAM and Mellon for years. That friction led to an unsuccessful management buy-out by a team led by Mr. Heathwood.
The core of Boston Partners' founders left the firm in April when the buy-out attempt failed.
The top management of Boston Partners became tangled in what could have been a bruising legal fight with Mellon Bank over their departures from BCAM. Mellon sued five of firm's founders, claiming they had breached their fiduciary duty and misappropriated trade secrets.
The altercation was resolved through mediation in late December. Two days before Christmas, the two sides reached an agreement that included an undisclosed payment by Boston Partners to BCAM. Neither side admitted liability as part of the settlement. Other terms of the settlement were not disclosed and both sides agreed to make no further comment on the case.
In the meantime, Boston Partners is managing equity, fixed-income and balanced portfolios. For equity investors, the firm offers core, small-cap and midcap value strategies. The firm's premium equity product adds small-and midcap stocks to the core portfolio, as well as options, high-yield bonds and other non-traditional instruments. In fixed income, it manages core and intermediate bonds, plus a premium bond portfolio that adds up to 20% high-yield bonds to the core portfolio. The balanced portfolio is currently 60% equities and 40% bonds.
Equity performance has been largely ahead of the market. During the third quarter, the core value equity strategy returned 9.84%; premium equity returned 10.1%; and the Standard & Poor's 500 Stock Index returned 7.95%. The midcap strategy returned 11.93%, compared with 8.87% for the Russell Midcap index; the small cap strategy returned 14.44%, compared with 9.88% for the Russell 2000 index.
The core bond portfolio returned 1.94% for the quarter, vs. 1.96% for the Lehman Brothers Aggregate index; the premium bond strategy returned 2.85%, vs. 1.91% for the Lehman Brothers Government/Corporate index; and the intermediate bond strategy returned 1.65%, matching the Lehman Brothers Government/Corporate index.
So far, all of Boston Partners assets are domestic, but there are plans add international in 1996 or 1997, said Mr. Heathwood, perhaps through a joint venture or acquisition.
Boston Partners has 46 accounts for clients including The UCLA Foundation, The Common Fund, Orange County Employees' Retirement System and Contra Costa County Employees' Retirement System. SEI Asset Management hired the firm as subadviser for its SEI Small-Cap Value Fund. The firm also picked up the subadvisory duties for two Smith Barney mutual funds previously managed by BCAM, an assignment that brought nearly $2 billion to its asset base.
The first client was a Taft-Hartley fund, a former BCAM client. That account "took a lot of prayer," according to Mr. Heathwood. "Getting the first two or three accounts was essential in getting the other 40 that we have."
About 90% of the clients are former BCAM clients, many of which gave Boston Partners the same assets Boston Co. was managing, said Mr. Heathwood.
Mr. Heathwood said he expects to add "a couple of billion" every year, an annual growth rate of approximately 25%, mostly through new client generation. He added he is expecting to experience the same levels of asset growth in 1996, and he expects the primary opportunities will be from investors not previously connected with BCAM. With $5 billion under management, asset generation should be easier from now on, he said.