DARIEN, Conn. - A U.S. District Court judge in New York is deciding the fate of the employee owners of the industry's newest investment management consultant, Rocaton Investment Advisors LLC, Darien.
Robin Pellish, managing partner and senior consultant; Joseph S. Nankof, senior consultant and head of asset allocation analysis; and David Katz, head of client service/marketing, led a walkout on April 1 of 16 senior employees from BARRA RogersCasey, Darien. Capital Resource Advisors LLC, Chicago, bought BARRA RogersCasey on March 27 from BARRA Inc., Berkeley, Calif., for $14 million (Pensions & Investments, April 1).
At issue in court is whether the ex-Rogers-Casey employees are subject to non-compete agreements.
Ms. Pellish said emphatically that the group is not subject to non-competes. But Kevin R. Greene, chairman of CRA Holdings, parent company of CRA, said in an April 3 written statement: "For those who have left we strongly encourage them not to violate their non-competes" Mr. Greene would not speak on the record to P&I.
On April 5, CRA RogersCasey obtained a restraining order that prevented Rocaton employees from:
* Disparaging their former employer or its successor company;
* Misappropriating confidential or proprietary information of their former employer or its successor;
* Soliciting employees of their former employer or its successor; and
* Soliciting their services to any client of their former employer or its successor.
Rocaton employees were not prohibited by the order from responding to communications from former colleagues of BARRA RogersCasey about employment with the new firm, announcing their new business venture to former clients or responding in general terms to inquiries by former clients.
"We truly regret having to take this course of action," Mr. Greene said in a written statement on April 10. "However, our lawyers advised us that the abuse of the agreements signed by each of the departed employees has been so egregious that we had no choice but to defend the rights of CRA RogersCasey and the rights of our 170 employees. We certainly hope that the disgruntled former employees will abide by their contractual obligations." Mr. Greene declined to elaborate.
Judge Jed Rakoff of the U.S. District Court, Southern District of New York, listened to arguments from both Rocaton and CRA RogersCasey on April 11 and continued the hearing. Lawyers from both sides expected a ruling as early as April 12, when P&I went to press.
Industry observers said CRA RogersCasey has every reason to be worried about competition.
"It's very much a people business. You've got to have the systems in place, but in the end, it's the people who are important," said L. Robert Frazier, assistant treasurer-asset management, Kimberley-Clark Corp., Dallas. Kimberley-Clark has employed RogersCasey and its successors for its $3 billion defined benefit plan since 1981.
Ms. Pellish said the group that left to start Rocaton did so after they learned CRA was buying BARRA RogersCasey. She said she and other key employees had been planning a management buyout, for which they already had arranged financing. They used that financing to start their own shop instead.
"We brought nothing from BARRA RogersCasey but our intellect," Ms. Pellish said.
Other former RogersCasey employees at Rocaton are: senior consultants Anne Buehl, Christopher Cesare, Barry Thomas and Meriam Zandi; Elizabeth DeLalla, head of U.S. equity research; Roger Fenningdorf, head of global manager research; Carla Haugen, head of alternative investments research; Timothy Jackson, associate, consulting; Christopher Lyon, consultant and defined contribution specialist; Julie Moore, head of international equity research; David Morton and Danielle Muller, co-heads of fixed-income research; and Adam Wheat, analyst.
Ms. Pellish said a number of clients she and her colleagues served at BARRA RogersCasey have expressed interest in moving their business to Rocaton, although none has signed a contract. She declined to identify the clients.
Observers expect a pitched battle for the rich RogersCasey client list, which includes some big corporate and public pension plans as well as endowments, foundations and insurance companies.
Numerous sources expect a large number of clients to follow Ms. Pellish's team. Plan sponsors said they need to closely evaluate their options.
Keeping an `open mind'
Judith D. Freyer, chief investment officer of the Board of Pensions of the Presbyterian Church, Philadelphia, said she is keeping an "open mind, talking to the different groups." CRA RogersCasey is the consultant for the church's $5.2 billion defined benefit plan.
Robert Hunkeler, vice president and director of investments at International Paper Co., Stamford, Conn., said he also is evaluating the situation. CRA RogersCasey advises staff on the company's $6.6 billion defined benefit plan. "I haven't met either side yet, but will be talking to each in the next week or so. It's too early to make a decision," Mr. Hunkeler said.
CRA RogersCasey advises staff of DaimlerChrysler Inc., Auburn Hills, Mich., on its the $4.8 billion defined contribution plan. "We are aware of the changes and are evaluating," said Ken Nilson, senior manager-investments and savings plans.
John F. Casey, who co-founded Rogers Casey & Associates. 36 years ago, didn't mince words in his assessment: "This is a three-Sigma event in stupidity. Not talking to senior management prior to buying the company was a colossal blunder." Mr. Casey now is chairman of vendor consultant Casey, Quirk & Acito LLC, Darien.