WAYNE, Pa. -- Pilgrim Baxter & Associates Ltd. is in the midst of a metamorphosis, moving from a traditional boutique structure to that of a multistrategy manager with wide distribution.
"I have a vision for this company and I believe we can move it to another place," said Harold Baxter, chairman and chief executive officer.
The firm has $16.6 billion in total assets under management, of which $8.5 billion is from U.S. institutional tax-exempt clients.
Mr. Baxter's vision includes expanding the firm's offerings, most likely through acquisitions, and the construction of a vast distribution system that would include a small international leg.
Pilgrim Baxter already has taken several steps toward those goals.
It has registered with regulators to launch 16 open-end load funds. The PBHG Advisor Funds will be offered through financial advisers and other intermediaries, thus expanding distribution. Institutional shares with a minimum of $1 million will be available.
Also, it completed its combination with Newbold's Asset Management Inc., Bryn Mawr, Pa., which has been in progress for more than a year. The gain for growth-equity manager Pilgrim Baxter was Newbold's value equity investment style.
And to make sure the institutional market hears about these offerings, marketer Robert Wag-ner was hired earlier this month. Mr. Wagner spent nearly 12 years with nearby SEI Corp. handling product management, sales and mutual fund administration before joining Pilgrim Baxter.
"Bob was our first major distribution hire," said Paul Hondros, Pilgrim Baxter's president and chief operating officer.
"We need to expand our service teams in the institutional world. We're adding a number of new regional customer service reps to call on plan sponsors and we'll also hire a team to call on consultants. If you don't show up and tell people what you're doing, they'll guess what you're doing."
IT STARTED WTIH HIRING
The October hiring of Mr. Hondros from Fidelity Investments was the beginning of Pilgrim Baxter's change.
Until then, the boutique firm was the personal baby of Mr. Baxter and his partner, Gary Pilgrim. Mr. Baxter handled the day-to-day business operations, while Mr. Pilgrim was the investment-focused partner.
The two men have rocked the baby their own way for the past 16 years and the firm has grown to nearly $17 billion in total managed assets. Bringing Mr. Hondros in as operating officer meant a rearrangement in the longtime relationship of the partners, Mr. Baxter noted.
To take advantage of their new value ability, Pilgrim Baxter hired small-cap value fund manager Gary Haubold early last year from Miller Anderson & Sherrerd LLP, West Conshohocken, Pa.
NEW FUNDS ADDED
Newbold's had been a large-cap value shop, but with Mr. Haubold's expertise, Pilgrim Baxter created small-cap, midcap and large-cap value equity mutual funds and launched them in May. The funds contain $232 million in total assets: $103 million in small-cap, $53 million in midcap and $76 million in large-cap.
The small-cap and midcap value funds are providing results of more than 50%, but consultants are slow to give them credit, Mr. Hondros said.
"They want to see a longer track history. I don't think the institutional market is aware of how well we've done" in performance, he said.
The small-cap fund has returned 56.15% since May 1; the midcap fund, 54.43%; and the large-cap value fund's total return since May 1 has been 28.49%.
Pilgrim Baxter and Newbold's both are owned by United Asset Management Corp., Boston. Newbold's had lost a great deal of business because of performance problems and was folded into Pilgrim Baxter during the past year and a half. At the end of last year, Newbold's became a wholly owned subsidiary of Pilgrim Baxter and was renamed Pilgrim Baxter Value Investors.
Newbold's not only provided Pilgrim Baxter with value investment expertise, but it came with $2.2 billion in client accounts. About $1.8 billion of that is U.S. institutional tax-exempt.
Newbold portfolio manager Madelyn Wharton has stayed with the new entity. Newbold's Chief Investment Officer, Jim Farrell, is now CIO of Pilgrim Baxter Value Investors.
Recalling the transition, Mr. Baxter said a great deal of the "us" and "them" mentality ended when Pilgrim Baxter and Newbold's moved into new headquarters together in Wayne.
"I was as guilty as anyone else of saying 'we' and 'they.' Pulling the cultures together was the hardest part, but it was easier when we were all together," he said.
DC MARKET TARGETED
The principal target of the new PBHG Advisor funds is the defined contribution market.
Mr. Hondros said, "Given the growth of the DC business and what we anticipate in future growth, we want to be there before and not after the volume gets high."
The current PBHG family of funds contains 14 no-load mutual funds, totaling about $9 billion. About $1.7 billion is from defined contribution and 401(k) plans, as of Dec. 31. The lion's share of the defined contribution money, about $1.5 billion, is in the PBHG Growth Fund. That fund had disappointing performance for 1997, -3.35% compared with 12.95% for the Russell 2000 Growth index. Company executives said the style has been out of favor.
