What a difference a year makes. One year ago, a Pensions & Investments cover story reported that consultants were telling their clients to dump Brinson Partners as a money manager. Now, with the firm's value style back in favor and its performance numbers improving, the firm is making a major comeback.
And it is not alone. Other value managers including Brandywine Asset Management, Wilmington, Del.; Boston Partners, Boston; Dean Investment Associates, Dayton, Ohio; and Aronson + Partners, Philadelphia, have had strong improvements in their performance numbers and are attracting interest from prospective new clients.
Aronson's dollar-neutral strategy's 65.1% return for the year ended March 31 put it first in the Pensions & Investments Performance Evaluation Report's overall managed equity and value managed equity universes for the period; and Boston Partners' premium equity strategy came in eighth in both categories, with a return of 40.4%.
Brinson's value equity portfolio was up 17.2% for the year ended March 31, while Brandywine's small-cap equity product was up 26% and Dean Investment Management's Flex Cap Value portfolio was up 24.3%.
In comparison, the Russell 1000 Value index was up 7% for the year.
"We were in as many searches in the first quarter as we were in all of 2000," said Ben Lenhardt, chief executive officer of Chicago-based Brinson. He said the firm is headed for a 200% increase in RFP activity for the year compared with 2000, if the numbers from the first quarter continue.
In international investing, Mr. Lenhardt said, if the pace of the first quarter continues, the firm will have a 400% increase for the year in invitations to submit proposals.
"We are in the mid-double-digits in terms of RFPs and questionnaires we have been invited to fill out for our global investing strategy," he said. "Many things are going right for us."
`Huge increase'
UBS Asset Management, of which Brinson Partners is a subsidiary, had $320 billion in assets under management as of Dec. 31, which rose to $400 billion at the end of the first quarter, according to Greg Fedorinchik, a spokesman for the firm. He said Brinson Partners does not break out its total assets under management separately anymore. Of the total, just more than $53 billion was managed internally for U.S. institutional clients at year end. That had grown to $59 billion by the end of the first quarter, with $1 billion coming from new institutional accounts of Brinson Partners.
"We've had a huge increase in RFPs and in people coming in to do due diligence on the firm," said Paul Ehrlichman, managing director of Brandywine, which had $6.3 billion under management at the end of the first quarter.
"We're on track to double or triple our RFPs from last year," said Laura Kirkpatrick, manager of client services and support at Brandywine. The firm didn't take in much new money in the first quarter because of the time lag between searches and hirings. "I think the increase in new clients will come in the third or fourth quarter," she said.
Brandywine was just hired as one of the managers for Salomon Smith Barney's new Corporate Trust program, essentially a manager-of-managers program marketed to institutional investors.
Boston Partners, which had $11.1 billion under management as of March 31, after taking in about $300 million in new money in the first quarter, also has seen a big increase in RFPs, according to Jack Coan, director of sales and marketing. "Year-to-date we've done over 80 RFPs for our four different value products," he said. The firm has won several new clients, whom he declined to name.
Thomas Giles, director of research at Dean, said the firm has seen a large increase in the number of RFPs and added, "some existing clients are rethinking the extent to which they had money allocated to other styles." He believes a number of funds with large growth mandates would switch at least some of them to value if they didn't have to take huge losses on the growth investments. "If they could get back to the breakeven level they would switch," he said. Dean has about $1.5 billion under management and picked up $10 million in new money so far in the second quarter for its small-cap and midcap value strategies. He wouldn't name the clients.
Mark Donovan, a partner in Boston Partners, said, "We're one year and two months into the post-bubble environment. I don't feel that all of the excesses built up prior to March 2000 are out (of the market) yet." He thinks over the next 12 to 18 months the market will continue to favor value investors.
Growth bias
Many value managers complained when they were underperforming the Russell 1000 Value index that the index was biased toward growth stocks. Now that they are outperforming it, the managers say the index still is "growthy."
"The growthiness of the index is definitely there. There are some names in the index that are a little surprising," said Mr. Donovan, pointing out that AOL TimeWarner Inc., New York, is in it. "But to say that value managers outperformed because the index is growthy is wrong. It's a factor, but it wouldn't be the first thing I would think of."
"There's no question the Russell 1000 (value index) is growthier than our universe of stocks," said Scott Kuensel, a managing director of Brandywine.
Ted Aronson, founder and chief investment officer of his firm, said, "You can't have it both ways. Even if it hurts you on one side of the mountain, you've got to be consistent" in following the benchmarks.
