Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
August 05, 2002 01:00 AM

Clients bolting: Money management exec quits amid uproar

Allen leaving Advanced Investment after enhanced index losses

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    PITTSBURGH - J. Thomas Allen, president and chief executive officer of Advanced Investment Management Inc., resigned amid client uproar over the firm's enhanced index strategy.

    At issue are client claims that, between November and July, Advanced Investment Management used much more leverage than the pension funds' investment guidelines called for and, in the process, lost the funds a lot of money. Some of the pension funds terminating the manager or considering doing so had hired it for a synthetic enhanced index strategy designed to replicate the performance of the Standard & Poor's 500 index and to add about 70 basis points through the use of futures.

    Mr. Allen accepts the blame.

    "Under the extreme market conditions we experienced recently, my decisions in applying our investment strategy produced significant underperformance for a number of our clients. The disappointing performance has caused some of our clients to raise questions regarding our abilities," Mr. Allen said.

    Damaging decisions

    "There's no escaping that my investment decisions were in several situations damaging to an otherwise excellent record," said Mr. Allen, who founded the firm in 1987 as a subsidiary of Pittsburgh National Bank Corp. The company has been employee owned since 1999. It manages $5.5 billion for institutional investors, about half of which is in the enhanced index strategy, Mr. Allen said.

    William Belko, Advanced Investment Management's chief investment officer, will become president and CEO as well. Mr. Allen, 46, will stay on during a transition period, but has not made any other plans.

    Trustees of the Minneapolis Employees' Retirement Fund terminated Advanced Investment Management on July 12 for violating investment guidelines of what was, at its high point, a $150 million enhanced index portfolio. "We believe this is a very serious breach of contract and have already referred the matter to outside legal counsel," Judith M. Johnson, CIO and executive director of the $1.1 billion plan, said in a statement.

    Ms. Johnson said her fund likely will take its complaint to the Securities and Exchange Commission "for further investigation and, hopefully, enforcement action against the firm." The Minneapolis Employees' fund also will file complaints with the Commodity Futures Trading Commission and with the National Futures Association, Ms. Johnson said.

    According to the investment guidelines, the account had to have at least 85% exposure to the S&P 500 index and a maximum of 15% leverage, Ms. Johnson said. After the account experienced unusually high losses in October and November and unusually big gains in December and January, fund officials asked its consultant, Ennis Knupp + Associates Inc., Chicago, to investigate.

    Guidelines violated

    Ennis Knupp found Advanced Investment Management had violated contract guidelines in December regarding both leverage and S&P 500 exposure, which then was 82%, Ms. Johnson said. In addition, she said, Pacific Investment Management Co., Newport Beach, Calif., the fund's transition manager, found evidence that Advanced Investment was making midmonth directional bets and incurring market losses, also forbidden under the investment guidelines. In July, the account had 400% leverage, for example.

    PIMCO was hired as the transition manager in mid-July and deleveraged the $206 million equity exposure of the account by $130 million, leaving it with $76 million in assets and $76 million of exposure to the S&P 500, to bring the account in line with investment guidelines, Ms. Johnson said.

    Trustees of the $3.2 billion San Bernardino County (Calif.) Retirement Board terminated Advanced Investment Management on July 18 for similar reasons and decided to pursue a lawsuit. The fund had hired the firm less than four months earlier to manage $498 million.

    "In mid-June, when the S&P 500 began to deteriorate, we believe that AIM violated the investment guidelines (of the plan) in an attempt to mask losses. Within a matter of days we discovered AIM's apparent violation ... so we terminated the contract and put an immediate halt to all trading by Advanced Investment Management," Timothy J. Barrett, executive director and CIO of the San Bernardino County plan, said in a statement.

    Mr. Barrett said his fund lost $55 million; Minneapolis officials said their fund lost $27 million - a third in June and the rest in July.

    In response to Minneapolis' news release about terminating Advanced Investment Management, Mr. Allen said in a statement: "Results of the account were not up to our expectations under extreme market conditions, but they were achieved within our permitted discretion. Through June 30, our long-term, annualized results over the nine-year relationship were within 1% of our S&P 500 benchmark. AIM contacted MERF to discuss positions and performance and reviewed our holdings with them and MERF's consultant. Nothing was concealed from them."

    Looking at terminations

    Consultants said Mr. Allen's resignation is not likely to stem the tide of pending manager reviews and probable terminations.

    The $800 million Minneapolis Teachers' Retirement System terminated Advanced Investment for a $100 million enhanced index account, said Karen Kilberg, executive director. Staff is investigating the fund's losses, trustees will review the matter later this month, and a lawyer will review staff findings, she said.

    The $620 million Retirement Board of Allegheny County, Pittsburgh, is having consultant Yanni Partners Inc., Pittsburgh, examine the investment process and returns of the enhanced index account Advanced Investment Management runs for the plan, said Executive Director Cheryl A. Bateman. Fund trustees may discuss it at their September meeting, she added.

    Wilshire Associates Inc., Santa Monica, Calif., recommended its clients terminate Advanced Investment Management some time ago, with the last client getting out at least a year ago, said Stephen L. Nesbitt, senior managing director.

    "I won't say why our clients terminated them, but I can say that the situation that was described in (P&I Daily, July 25), was not the first time this has happened. There's been a history of this with AIM," he said.

    Suzanne Bernard, Minneapolis' lead consultant at Ennis Knupp, declined to comment, saying she could be called as a material witness if there are lawsuits. Stephen Cummings, president of Ennis Knupp, also declined comment.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    Private Markets
    Sponsored Content: Private Markets

    Reader Poll

    August 10, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Gaining Momentum: Where Next for Trend-Following?
    The market opportunity in U.S. residential mortgage-backed securities
    Credit Indices Evolve with Enhanced Data Inputs
    Hedge Funds 2.0: Back to the future
    How Has 2022's Carnage Reshaped Global Stock and Bond Markets?
    Crossroads: Politics, Inflation, & Bonds
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    August 1, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright Ā© 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit