SAN DIEGO - Nicholas-Applegate Capital Management has been terminated by at least two institutional clients and placed on two pension funds' watch lists.
The firm is or was a domestic growth equity manager for all four.
An executive at Nicholas-Applegate said it's not unusual for a money manager to lose some clients when the firm's style is out of favor.
The $2 billion pension fund of Digital Equipment Corp., Maynard, Mass., terminated Nicholas-Applegate this summer.
John Cutler Jr., DEC's manager of pension investment analysis, would only say the termination followed a change in asset allocation; Nicholas-Applegate was the only firm terminated as a result of the change.
No other information was available.
Nicholas-Applegate also was replaced by the Harbor Fund of Toledo, Ohio.
Harbor said in a recent proxy statement that Nicholas-Applegate no longer would handle the $86 million Harbor Growth Fund because "trustees did not believe that Nicholas-Applegate could continue to provide the level of portfolio management services that the fund requires."
Officials with Harbor would not comment further.
The firm is on probation with the Oregon Public Employes' Retirement Fund and the Sacramento County (Calif.) Employees' Retirement Fund.
Nicholas-Applegate manages about $441 million for the $25 billion Oregon fund in mid- to small-cap domestic equities, with the Russell 2500 index as a benchmark.
Rollie Wifbrock, chief of staff with the Oregon Treasury, said Nicholas-Applegate has outperformed the benchmark since the company was hired in 1992. The probation was the result of "organizational issues" at Nicholas-Applegate, not performance, Mr. Wifbrock said.
Sacramento County officials expressed concern about Nicholas-Applegate's performance. Nich-olas-Applegate manages $85 million in midcap growth equity for the $2.5 billion fund.
Jeffrey States, chief investment officer, said Nicholas-Applegate was underperforming the benchmark, which is the S&P 400 Mid-Cap Index.
It is fund policy to warn a manager when a concern exists, Mr. States said.
"We want to make sure we're communicating to the manager that there's an issue. You want to make sure the manager continues to be the same manager you hired," Mr. States said.
Arthur Nicholas is one of the firm's founders and is the chief executive and chief investment officer. Mr. Nicholas said it is not unusual for a firm to lose business on a down cycle, such as the pressure now on mid- and small-cap growth stocks.
"Cycle-wise, it's about as bad as it's ever been," Mr. Nicholas said.
Nicholas-Applegate manages $32 billion in total assets; its common style is small- and midcap growth equity.
"You're not always going to be number one, but we have been consistently strong, often in the upper one-third. Our company has never been stronger," Mr. Nicholas said.
He also pointed out the firm continues to gain new accounts, such as the $6.3 billion Illinois State Board of Investment in Chicago, which has just hired Nicholas-Applegate to manage $50 million in small-cap growth equity.
In general, the first quarter was hard for small-cap growth, according to data from consultant RogersCasey of Darien, Conn.
The second quarter was better, but still lags other styles, consultants say.
Looking at the one-year period ended June 30, small-cap growth managers returned 11.8%, vs. 31.9% for small-cap value, according to RogersCasey.
Mr. Nicholas said there has been little turnover in the company's investment management staff.
The company hired a junior trader and a hedge fund manager, but Mr. Nicholas said the only areas with turnover at this time are technology and programming and retail marketing.
"We've promoted five into the investment arena and hired seven new people," Mr. Nicholas said. The firm has 15 partners, and more than 45 investment management staffers.
Mr. Nicholas said the firm has acquired 18 new accounts so far this year.
