Money managers rarely if ever relinquish clients. But Snyder Capital Management Inc., based in San Francisco, dropped two institutional clients in the last several months.
"It seems like suicide to me," said Robert Clelland, trustee of the San Diego Community Foundation, one of the dismissed clients.
In institutional investing, terminating is invariably the other way around. That is, the fund sponsor - which has the money and therefore the clout - makes the decision on terminating the money manager. But not in these two cases, at least with Snyder Capital.
The San Diego Community Foundation was dropped by the manager early this year.
The other dismissal, occurring last year, was Klukwan Inc., Juneau, Alaska.
Speaking of Snyder Capital, Mr. Clelland said, "You can say we were 'fired' by the manager."
At Klukwan, Paul Nishimura, chief financial officer, said, "They advised us to end the relationship and find another manager."
Despite the incongruity, both cases show a commitment to investment-style integrity of the manager. The instances also illustrate a fealty by the sponsors to their own investment objectives and an understandable loyalty to a manager that had performed well for their funds.
Snyder Capital, indeed, has had a faithful clientele. The two ceded clients are the only institutional clients it has lost, except for a pension sponsor that terminated its plan.
In essence, Snyder preferred the long-term goal of maintaining its investment style rather than take the immediate reward of keeping the fees from the portfolios. Snyder Capital's reaction certainly belies the image that the investment management business is driven by greed and fear.
"We just felt it was best to leave the accounts, while the relationships were good," said Walter Niemasik Jr., vice president. "The partings were amiable."
The reason for the parting, Mr. Clelland said, was that the $80 million San Diego fund wanted Snyder to be fully invested, while the firm wanted to hang on to its cash position, around 15%.
"We have a policy of equity managers remaining fully invested," with cash less than 5%, Mr. Clelland said. "We like to manage the cash ourselves, and for a lesser fee" than active equity management.
The foundation, a client for more than a year with roughly $10 million with Snyder Capital, noticed the manager's continuing cash position and asked Snyder to fully invest the cash. "They just said, 'We don't need your business.' They just fired us," he said.
Mr. Niemasik said Snyder kept the cash position because of the lack of quality investments. While it prefers to be fully invested, he said Snyder can't always find investments that meet its criteria in its small- and midcapitalization realm.
"If we buy more stocks we could wind up buying some firms that don't fit our criteria and that could hurt us," he said.
"Cash isn't a market-timing issue," he added. Typically, "it fluctuates between 5% and 15%," he added. Now, it's at 10%.
"They had some legitimate concerns," he said of the San Diego fund. "But we didn't want to manage the firm congruent to that."
"From the consultant who was embarrassed to the (investment) committee members, Snyder made no friends," Mr. Clelland added.
Klukwan - an Alaskan native corporation with companies in, among other areas, plywood manufacturing, electrical contracting, and, in Japan, tug-and-barge operations - was reorganizing its $70 million equity trust and wanted more current income to distribute.
But Snyder Capital declined to change its investment approach for a portfolio of higher-yielding stocks and resigned.
"We thought it was a high moral standard," Mr. Nishimura said, "when we wanted to pay them to stay on."
Snyder "had been one of our best performing managers," he added. Klukwan had employed Snyder since the early 1990s and had some $12 million with the manager at the time of the resignation.
Both the San Diego fund and Klukwan hired other managers to replace Snyder.
Referring to the two cases, Mr. Niemasik said, "We couldn't compromise our style. "There is a real downside to compromising your investment style. In times like this, anything you throw in the stock market is going to make money. But in the long-term you have to be more disciplined."
In these cases, he said, "It was better for us to resign while we had good track records and relationships."
