There's a boom in boutique money management firms.
In fact, some have gone from nothing to more than $1 billion under management in a year or less, and others have reached almost $500 million in the same period.
High-speed takeoffs like this haven't been seen in almost 20 years.
Among the success stories:
* Chartwell Investment Partners, Berwyn, Pa., primarily a U.S. equity manager, grew to almost $2 billion in assets under management from $330 million in a year.
* Marsico Capital Management, Denver, began with nothing in October and now has $1.2 billion in equity assets, although only about $105 million is U.S. institutional tax-exempt.
* International equity manager Mastholm Asset Management LLC, Bellevue, Wash., has grown from zero to nearly $400 million in assets under management since the firm was formed in July.
* Rockwood Capital Management LLC, St. Louis, went from zero to $468 million in fixed-income assets under management in one year.
* Not quite so fast, but still impressive, domestic equity manager Pzena Investment Management LLC, New York, has grown from zero to $700 million in assets under management in 21/2 years, and anticipates hitting $1 billion soon.
Several factors are working in concert to fuel the startup boom, consultants say.
For one, the strong equity market has resulted in high returns, giving sponsors and portfolio managers the confidence to take risks.
At the same time, pension fund executives are seeking to reallocate some of their extraordinary market gains, and so are more willing to take money from successful existing managers.
Also, financial services consolidation has created enormous bureaucracies that discourage creative, independent-minded pro- fessionals and inspire them to start their own firms.
"There's a huge market for these new firms," said Terry Dennison, a principal at Mercer Investment Management Consulting, Los Angeles.
"They provide diversity. There has been a shrinkage of the gene pool with consolidation. And the larger a firm, the more bureaucratic. The innovation can go out of it."
Small firms can offer superior performance because they focus on fewer products and customers, consultants say. Startups are especially driven to get high performance results that will help launch them, consultants say.
While some startup firms struggle for years to get $200 million under management, others experience an almost meteoric rise.
Chartwell has picked up 45 institutional clients and $1.5 billion in U.S. institutional tax-exempt assets since April 1, 1997. It manages about $900 million in large-cap value, $900 million in small-cap growth and $200 million in fixed income. The small-cap strategy has just been closed to new clients; large-cap will close at $5 billion.
The firm was founded by 10 people who left Philadelphia-based Delaware Investment Advisers at the end of March 1997. The team's performance record followed them. Almost immediately after forming the firm, Chartwell was hired by the Missouri Local Government Employees' Retirement System, Jefferson City, to run the $330 million in domestic equity the group had handled at Delaware.
Marsico Capital, meanwhile, was formed by Tom Marsico after he left Janus Capital Corp., Denver, where he managed the Janus Twenty Fund and Janus Growth and Income Fund, both large-cap growth funds. The majority of Marsico's assets under management are in retail mutual funds, including two subadvisory relationships.
Marsico has two funds, Marsico Focus Fund and Marsico Growth and Income Fund, with a combined total of $300 million. The funds are distributed through supermarkets such as Schwab, Fidelity, Jack White & Co., Waterhouse and others. It subadvises four funds for NationsBank and subadvises a variable annuity portfolio for American Skandia Life Assurance Co.'s American Skandia Trust.
Mastholm, an all-capitalization international growth equity manager, has one separate account product and three institutional clients. The firm recently raised its minimum account size to $25 million from $10 million. Executives say they will stop taking new business at $2 billion.
Mastholm was formed last June by Theodore Tyson, former international equity chief at American Century Investments.
Rockwood has picked up 19 clients, despite the lack of strong demand for bonds during the bull equity market.
Rockwood was formed in April 1997 by a team of investment professionals from Boatmen's Trust Co., led by Frank J. Aten, former Boatmen's assistant chief investment officer for fixed income.
The firm's fixed-income strategies are strategic duration, limited core, structured, enhanced index and cash management.
Startups that don't begin with a track record and, possibly, clients from a previous employer face a harder battle for business, said Richard Pzena, president and chief investment officer of Pzena Investment Management. He had been director of U.S. equity investments at Sanford C. Bernstein & Co.
Although many consultants and pension executives aren't interested in his firm because he lacks a three-year track record, Mr. Pzena said, "there have been a number of (them) that have been driven to identify young, small firms that can make a difference.
"They have the attitude that they will find the best people when they are early in their careers. They try to ascertain whether you have a process, they meet with our researchers and sit in on our meetings. They are concerned about your reputation and check your references carefully. And eventually, you get a track record."