DENVER - Long known as a growth equity shop, Berger Financial Group LLC has made some bold steps in the past few months to broaden its investment horizons and cut back on its aggressive growth strategies.
The Denver-based firm has doubled in size in the past two months, acquiring two money management firms, Bay Isle Financial Corp., a value shop, and Enhanced Investment Technologies Inc., known as INTECH, which employs a risk-controlled mathematical investment strategy. San Francisco-based Bay Isle brings $1 billion in assets to Berger, and INTECH, in Palm Beach Gardens, Fla., brings $6 billion. Once the deals close, Berger will have total assets under management of $14 billion, about $11 billion of which is from institutions.
At the same time, the company is scaling back its aggressive posture and bringing its risk profile down on the growth side.
Citing the market volatility that has left its growth portfolios near the bottom of the performance universe for the past two years, the firm is shifting its growth portfolios to a more conservative approach and merging two of its edgier portfolios. Recovering the losses in the growth portfolios caused by the drop in the market is one of the top priorities, said Berger Chief Executive Officer Jack Thompson.
The goal is to diversify Berger into a multistrategy firm that isn't feast or famine, depending on the shifts of the market, he said.
To protect against further market punishment, Berger has merged the concentrated Berger Select Fund, managed by Mark Sunderhuse, into Berger Growth, managed by Steven Fossel. This aggressive mutual fund returned -40% in 2001. The Russell 1000 Growth index returned -20.4% in the same period.
Mr. Fossel will take over as the portfolio manager of the combined $770 million Berger Growth portfolio. Mr. Sunderhuse left the firm at the end of 2001, said Mr. Thompson, to pursue opportunities that fit his more aggressive style. The Berger Growth Fund, a large-cap portfolio, returned -32.5% in 2001.
Also, the more aggressive Berger New Generation Fund will be merged into the Berger MidCap Growth Fund. Paul LaRocco, who managed both funds, will run the $170 million combined portfolio, which will be called the Berger Midcap Growth Fund. The New Generation fund, a small-cap portfolio, returned -52.1% in 2001. The MidCap Growth Fund returned -39% in 2001. The Russell Midcap Growth index returned -20.1%.
The mergers are subject to shareholder approval and won't be official until the second quarter, said Mr. Thompson, but repositioning of the portfolios already is under way. The new funds will rely less on aggressive technology names and momentum investing and more on stable growth names.
David Mertens, senior vice president at Berger, said the discontinued funds weren't used by institutions.
The portfolios haven't been marketed to the institutional side of the business, Mr. Mertens said, because they were too aggressive. But the plan is to offer a large-cap, a midcap, and a small-cap growth separate account product to institutions. The accounts would be run by the same portfolio managers that run the corresponding mutual funds and would have a lower octane approach. "We're doing a better job of documenting how we run money and being much more cognizant of where we're taking our bets," he said.
The small-cap growth portfolio, managed by Mr. LaRocco, will remain an aggressive growth offering, but "I don't think you'll see the super-high-octane sorts of products you saw in New Generation and Select," said Mr. Mertens.
The growth portfolios have been plagued by turnover in recent years. Portfolio managers Amy Sellner, Tim Sellitto, William Keithler, John Jares and Patrick Adams all have left in the last few years. Mr. Thompson said he is satisfied with the portfolio management teams now in place and is working to bring some stability to the investment management operation.
Next on the horizon for Berger is developing another small-cap value strategy to be managed by Bay Isle, which manages a large-cap value portfolio. Berger has a small-cap value fund, subadvised by Perkins, Wolf, McDonnell and Co., but it has been closed to new investors.
The firm also is looking at developing a new strategy managed by its other recent acquisition, INTECH.
Beyond that, Berger is considering making more acquisitions to further diversify its asset base. Topping the wish list is a fixed-income firm, he said.