LONDON - Cursitor Management Ltd., once one of the hottest managers around, has fallen on hard times.
Disastrous performance and $2 billion in client defections have led to an internal reorganization, including separation of day-to-day investment responsibilities from long-term strategy.
Known for its swing-for-the-fences investment approach, Cursitor used to turn in spectacular performance. But wrong-footed investment decisions have caused it harm in the past two years, and cost it nine major clients.
Total assets under management have slipped to $7.5 billion from $10 billion in October 1995, when the firm's sale to Alliance Capital Management L.P. was announced.
The firm, formerly known as Cursitor-Eaton Asset Management Co., is still listed as a manager by several large pension funds, including Illinois State Board of Investments, Bell Atlantic Corp., International Paper, Lockheed Martin Corp., Oregon Public Employes' Retirement System and the California State Teachers' Retirement System (Pensions & Investments, Jan. 20). Washington State Investment Board, another client, recently put Cursitor on a watch list.
As a result of the decline, two top Cursitor-Eaton executives, who last year had been sent to recharge the business side of Alliance's London operation, have returned to shore up Cursitor Management's sagging client base.
Hugh Eaton III and Richard Morris, chairman and chief executive, respectively, of Alliance's London unit, have left those posts and are now chairman and vice chairman of Cursitor Management, respectively.
They have not been replaced at the London unit, renamed Cursitor Alliance PLC; that unit now reports to Bruce Calvert, vice chairman and chief investment officer of Alliance Capital in New York.
In addition, Cursitor Management named Nick Carn to the newly created post of chief investment officer, while the firm's longtime investment guru, Charles Cave, has been placed in charge of research and strategy. Previously, the firm had operated with a strategy committee and no formal CIO.
"The idea was to separate a lot of the asset strategy research and discussion from the actual investment decision-making," Mr. Morris explained.
The problem is that Cursitor's Cold War-era assumptions no longer held true, Mr. Eaton said. The global asset allocator has been entirely out of the U.S. equity market and overweighted in Japan for much of the past two years.
At its peak in 1995, Cursitor had 55% of its portfolio invested in Japanese stocks on the belief the economy would respond to monetary stimulus and high deficit spending on the part of the Japanese government.
Meanwhile, firm executives believed the U.S. economy would decelerate or go into recession because of a variety of monetary and interest rate reasons, Mr. Morris said. "We never understood the dynamics of corporate profits and how that had changed," he said.
Mr. Eaton said the experience of the past two years has caused the firm to re-evaluate its approach.
He said he doesn't know whether rising U.S. equity prices are a short-lived phenomenon or whether they "will render the work we have done for the last 25 years useless."
"Has the world changed so much (to make) the tools we used in managing money completely useless?" he asked.
In the past two years, the firm has underperformed the Morgan Stanley Capital International World Index. The TCW Global Investment Fund, managed by Cursitor, fell behind the benchmark by 1,500 basis points in 1996 and 800 basis points in 1995.
While the World Index returned 14% and 21.3%, respectively, in the past two years, the $366 million TCW pooled fund, a proxy for the firm's $7 billion in separate accounts, returned -1% in 1996 and 13.3% in 1995, according to the Pensions & Investments Performance Evaluation Report.
In contrast, the fund returned 6.9% in 1994 - 130 basis points above the index's 5.6% return. But even on a long-term basis, the fund performance is unhealthy: five-year annualized returns were a meager 7.3%, compared with 11.4% for the index.
Cursitor doesn't manage assets against a benchmark, in contrast to play-it-safe managers who maintain a core portfolio to minimize benchmark risk. "We always knew we ran a style with major business risk," Mr. Morris said.
Mr. Morris noted relations with senior people at Alliance remain very good, and that Cursitor has maintained its independence.
Nevertheless, some clients have lost patience, and others may follow.
Washington State recently placed the firm on its watch list out of concerns over performance. Although its cumulative portfolio performance since inception has been roughly 2,600 basis points ahead of its benchmark, it has underperformed recently, said James Parker, executive director.
In the last 2 to 21/2 years, the firm made the wrong call on the Japanese and U.S. equity markets and got caught with too much cash during the U.S. bond rally in 1995, said Mr. Parker. The Japanese equity market in particular served Cursitor a "double whammy" because the managers had such faith in Japan's turnaround prospects, they not only overweighted the market, but also did not hedge the yen against the dollar.
"They're good people, but they made some wrong calls," he said.
Typically, the Washington fund gives firms on the watch list about six months to demonstrate they are turning around, said Mr. Parker, but he added it might be more patient with a long-time manager like Cursitor that had good past performance. He noted the firm has revamped its approach to move away from interest rate-driven cycles and toward cycles driven by corporate earnings. The appointment of Mr. Carn, a strong equity specialist, should help in implementing investment ideas, he added.
The Oregon pension fund also is planning to review the firm's performance, said Jay Fewel, senior equities investment officer. Oregon placed the firm on its watch list for a year at the time of the Alliance acquisition, as it does with all firms being sold, he said. The fund probably will review its global tactical asset allocation portfolio with Cursitor in May as part of a review of all its international equity managers. Oregon has had a portfolio of approximately $300 million with Cursitor for the last eight to nine years, and it has performed well in the past, although not recently, said Mr. Fewel.
"The last two years have been extremely difficult for them," he said. "As much as you like what anyone does, at the end of the day you have to look at one thing, and that's performance."
The changes look encouraging on paper, said Mr. Fewel, adding Alliance has supported the firm and allowed it to work independently. All those factors will be part of the May review, he said.
Mark Scott, a senior investment consultant at Watson Wyatt Partners, Reigate, England, said: "Most managers are far too concerned with their business risk to take the steps (Cursitor has) with its asset allocation process.
"On the one hand, I admire them. On the other hand, it didn't work out for them."
