NEW YORK - Institutional investors are abuzz about Fred Alger Management Inc.
It's only partly because the investment management company came back from the brink of disaster after two-thirds of its investment team were killed Sept. 11 in the attacks on the World Trade Center. The popular press was filled with the story, and everyone knows by now how nine alumni rejoined the firm to create a new team of old players who knew the firm's growth stock process inside and out.
A marketer from a much larger money management company, who asked to remain anonymous, said one client, also an Alger client, could not stop talking about Alger at a recent meeting. "They are just really glad and excited about how well Alger has come back. I think we're all really happy for them," said the marketer.
"We have our strongest team ever," said James P. Connelly Jr., Alger vice chairman. "It's not like a team of basketball all-stars, where you put them together and they play badly together. They all knew Dave (Alger, one of the victims) and Fred and work well together."
But there's more to the story when it comes to institutional investors.
Long, hard look
In returning from the brink, Alger's senior management took a long, hard look at the business. They analyzed every aspect of the fee structure of institutional accounts and mutual funds, looked critically at trading, and took apart all investment processes, said Mr. Connelly, the day-to-day manager of the business. Fred M. Alger, president, chairman and chief market strategist, remains active in the firm but splits his time between Switzerland and Long Island. Mr. Connelley runs the company's new office, now in a low-rise, low-profile building in a retail neighborhood in midtown Manhattan.
Fred Alger Management is best known as a mutual fund manager. But during the analysis, Mr. Connelly and Dan C. Chung, chief investment officer and director of research, concluded that the firm, which has a pure growth investment process, actually had all the makings of an institutional manager.
"We haven't gotten our due from the institutional community," Mr. Connelly said, pointing to the impressive performance of the company's two flagship strategies.
The Alger Large Cap Growth Composite (institutional) returned -11.39% for the year ended Dec. 31, 0.88% annualized for three years and 13.99% annualized for five years, walloping the benchmark for all three periods. The Russell 1000 Growth index returned -20.42% for the year, -6.32% annualized for three years and 8.27% annualized for five years. The Alger MidCap Growth Composite (institutional) returned -6.3% for the year, 11.7% for the three years and 16.3% for the five years. The Russell Midcap Growth index returned -20.15% for the year, 2.16% for the three years and 9.02% for the five-year period.
Not well known
"One thing that we learned when we analyzed the business is that investment consultants did not know us well," Mr. Connelly said. To rectify that, a search is on for specialist consultant marketers.
"We're pretty confident that we can stand up to any consultant scrutiny by this point. So much due diligence was conducted on us after Sept. 11 - all day, every day, for months. We're used to being watched. It's been like living in a fish bowl," Mr. Connelly said.
Dealing with consultants immediately after Sept. 11 was sometimes painful. Mr. Connelly said he kicked one consultant out of the firm's Morristown, N.J., office a week after the tragedy because "he took out a black pen and slashed out the names of our investment team one by one: `Dead.' `Dead.' `Alive.' It was incredibly hurtful. We still had teams of employees out, combing the hospitals. I told him that there are some relationships that just aren't worth it."
Many staff members remain traumatized post-Sept. 11. In fact, Mr. Connelly got up and closed the door to the firm's conference room during an interview when he started to talk about the aftermath. "People are still pretty upset around here," he said. "I don't want them to hear this."
Money returns
Nervous about the initial gap in investment management coverage, institutional investors took about $1 billion from Alger after Sept. 11. But many came back and gave the firm even more money.
The $4.2 billion New Hampshire Retirement System, Concord, took back $192 million in mid-September but reallocated $200 million to Alger Management for an all-growth mandate in mid-October. American Skandia Life Assurance Corp., Shelton, Conn., pulled $787 million in mid-September from a growth mandate subadvised by Alger for variable annuity programs and returned $798 million on Dec. 7, said Mr. Connelly.
Alger Management ended the year with a total of $12.6 billion, slightly up from $12.3 billion on Sept. 10, 2001.
Good performance and the new focus on marketing to investment consultants seem to be working. New institutional search activity has increased so much that Mr. Connelly is adding personnel to deal with RFPs and search requests.
"And the good news is that we're not only getting into searches, but also in finals. We're making our way through the process," Mr. Connelly said.
