BOSTON -- Loomis, Sayles & Co. LP is restructuring its value equity and domestic bond businesses, but leaving alone its growth equity and high-yield fixed-income groups.
The firm, which manages a total of $69 billion in assets, will consolidate some of its investment teams and unite them based on investment style, rather than on geographic location. Each of the firm's 10 offices currently has a managing partner who runs all of Loomis, Sayles' assets for that area.
Loomis' assets will be divided into three groups: a new value equity management group; a new core bond management group; and an existing fixed-income management group, the international and domestic high-yield unit that is based in Boston and run by Dan Fuss. Loomis officials say Mr. Fuss' group is its biggest profit center.
Its growth equity business will remain geographic-based, at least for now.
Robert Blanding, president and chief executive officer of Boston-based Loomis, Sayles, said company executives decided to curtail the decentralized approach "to do what we do better."
Issac Green, who works out of Loomis' Detroit office, will head a new, larger value equity platform group. Loomis' largest value equity offices were Pasadena, Calif., and Detroit.
Mike Millhouse, Milwaukee, will head a new domestic core bond group that will bring together operations that had been in San Francisco, Pasadena and other areas.
The reorganization is a work in progress -- Loomis, Sayles executives have yet to decide, for example, what Mr. Green's and Mr. Millhouse's titles will be.
But the restructuring will have its fallout. Many of the Pasadena office's equity accounts will be transferred to the Detroit value equity team. The firm also is eliminating Carol McMurtrie's position of managing partner in Pasadena. She will be leaving the firm.
In the second step of the restructuring, Loomis will group the fixed-income assets by investment style, rather than by geography.
The majority of Pasadena's fixed-income management accounts will be transferred to San Francisco. Pasadena's three bond managers will move there too.
"The goal is to keep as many of the people as we have in the new structure. That's our primary objective, but it may mean a redefining of roles or a different assembly of teams," Mr. Blanding said.
"We will not have management partners in 10 different physical locations, but will have product leaders and people leading product teams. I do not expect there to be turnover."
The reorganization has nothing to do with performance, Mr. Blanding emphasized. Still, its performance in value equities is less than stellar.
According to Retirement Plan Resources, a consulting firm in Torrance, Calif., Loomis' Core Value Institutional equity portfolios returned 19.42% for the year ended June 30. The Standard & Poor's 500 stock index returned 30.16% for the same period, and the median value manager in the consultant's universe returned 22%.
For three years, Loomis' value product returned a compound annual 24.15%, Retirement Plan Resources said; the S&P 500, 30.24%; and the median value manager, 24.3%. For five years, Loomis was 19.6%; the S&P 500, 22.48%; and the median, 23.91%.
Performance already has caused at least one client defection. The $25 billion Los Angeles County Employees' Retirement Association, Pasadena, dropped Loomis as value equity manager, although it still manages fixed income for LACERA.
News of the restructuring is prompting some of Loomis' California pension clients to review their relationships with the firm, since their value equity portfolios are moving to Detroit and their fixed-income portfolios are moving to San Francisco.
The $10 billion Los Angeles Fire and Police Pension System, which has $1 billion in value equities invested with Loomis, will review the situation next month.
Tom Lopez, chief investment officer for the fund, said Loomis' restructuring is major. He noted the Pasadena and Detroit offices have different investment management philosophies.
"Pasadena had used a traditional value management approach and, in addition, they looked at undervalued securities and looked at undervalued sectors as well," Mr. Lopez said.
By contrast, Detroit looked only at undervalued securities, he said.
"Each has its proponents, but it's dependent on the individual skill of the portfolio manager." he said.
The fire and police fund also has $900 million with Loomis' fixed-income group in San Francisco that won't be reviewed, he said.
LA Fire and Police is not the only pension fund that will scrutinize Loomis.
This week, the $6.6 billion Los Angeles City Employees' Retirement System board will review its equity investment with Loomis.
In June, the city fund reduced to $326 million from $562 million its value equity portfolio managed by Loomis.
"There've been performance issues and personnel and structural changes," said Oscar Peters, general manager for LA City.
The board will not be reviewing the $282 million in fixed-income assets Loomis is managing for the system, he added.
Mr. Blanding said Loomis' fixed-income performance has been strong for a long time, but the value equity side did not fare as well.
"In the last 12 months, value equity has been a particularly tough environment for active managers following a value discipline," Mr. Blanding said.
But the value approach to equity has proven to have done well over time, and the firm is sticking to that investment strategy, Mr. Blanding said.
In the restructuring, Loomis is modeling the structure of its groups after its successful fixed-income management group, which specializes in a flexible value-oriented approach domestically and internationally.
That group, headed by Dan Fuss of Boston, will not be changed.
