NEW YORK - Vanderbilt Capital Advisors LLC has seen its institutional tax-exempt assets drop by more than half during the last five years, to just more than $3 billion last year from its peak of $7 billion in 1998.
Officials at the fixed-income firm, which changed its name from ARM Capital Management in 2000, did not respond to phone calls seeking information. While Vanderbilt officials weren't talking, consultants claim the firm suffered from poor performance and a lack of communication with the consulting community.
Besides seeing its assets shrink and several pension fund clients head for the door, Vanderbilt has seen the departure of its entire senior level marketing staff during the past year.
According to industry sources, clients that have left Vanderbilt since 2000 include the $7.6 billion Arkansas Teacher Retirement System, Little Rock; the $1.7 billion Fresno County Employees Retirement Association, Fresno, Calif.; the $3.8 billion Municipal Employees Retirement System of Michigan, Lansing; the $1.7 billion City of Fresno Retirement Systems, Fresno, Calif.; and $1.3 billion Seattle City Employees' Retirement System.
Veteran institutional marketers Charles C. Field, managing director for business development and client service, and Scott M. Harrington, executive vice president, both left Vanderbilt this year after nearly nine years with the firm. Michael K. Carroll, marketing officer, also left the firm.
Messrs. Field and Harrington declined to comment on Vanderbilt. Mr. Carroll wasn't available for questions.
In addition to poor performance and not adequately responding to the consulting industry's requests for information, one consultant cited industry concerns after Vanderbilt ran afoul of Securities and Exchange Commission regulations regarding trading practices by a Vanderbilt trader in 1998. In addition to an SEC censure, Vanderbilt agreed last September to settle accusations that it failed to properly supervise a trader engaged in a "fraudulent trading practice" by instituting additional compliance measures and were assessed a civil penalty of $125,000.
A consultant who is familiar with ARM and Vanderbilt and wished to remain anonymous said he dropped the firm from client consideration around the time the alleged fraudulent trading activities were taking place.
"We are familiar with them and have used them in the past, but they ... held some strange types of bonds in their portfolio," said the consultant. "We were concerned about some of the securities they held ... In 1998, during the Russian default and the meltdown in emerging markets debt, they held a number of those securities. The securities were usually held at par, when the market indicated they should be something different," said the consultant.
Following the firm's encounter with the SEC "they were smart to change their name from ARM," the consultant said. "They were starting to lose assets, and it was the smart thing for them to do. We terminated them long ago from fixed-income mandates. We were never really comfortable with their bond pricing policies."
Other consultants said Vanderbilt submitted partial information to their databases or in some cases stopped submitting performance data.
"They stopped submitting performance information to our database after 2001," said another consultant, "That tells you something. My sense is that if you are doing well, you update your data."
The firm did submit performance information to the widely used Mobius database. According to a consultant subscriber to the database, Vanderbilt's core bond product underperformed its benchmark, the Lehman Aggregate, in three of the past five years. The Vanderbilt core fixed-income portfolio topped the index in 1998 and 1999, returning 8.87% vs. the index's 8.67% in 1998, and 0.67% vs. -0.83% in '99. But in 2000, the Vanderbilt portfolio was up 10.68% vs. the index gain of 11.63%; in 2001, Vanderbilt was up 7.19% while the index gained 8.42%; and last year, Vanderbilt was up 7.88% vs. the index gain of 10.27%.
"They didn't add value in three of the last five years," said another consultant. "Based on those numbers, it would be difficult for them to get past many search screens."
Michael Rosen, principal with Angeles Investment Advisors, Santa Monica, Calif., said, "We were familiar with them at ARM and we were concerned at the time about some of the issues that seemed to be part of the SEC proceedings. We haven't used them in several years."