I read with great interest your article "Growth pains" (P&I, April 14, page 3).
While firm name recognition is important to some corporate boards and their investment committees, fiduciaries have not necessarily been well served by hiring the most recognized names in the investment business.
Your article led one to believe that neither consultants nor plan sponsors have the courage to retain managers who do not have large asset bases. Our experience has been the opposite. We work with many results-oriented consultants and clients who are constantly searching for talented investors who have not yet become household names. In my opinion, it does not make sense to judge whether a firm can deliver based on their assets under management.
I thought that pigeonholing managers into very narrow style boxes was a phenomenon that had run its course. It is strange to me that some would narrow their searches to just those growth managers that blindly owned the worst stocks in the investible universe. Managers whose process led them away from the wreckage are accused of having "style drift." If the process is disciplined, but leads the portfolio toward the best investment opportunities within the large-cap growth arena, then doesn't that best serve the client? I think the most important factor is not style drift, but process drift — it makes sense to me that process stability is every bit as important as style stability. Truth be told, growth managers are naturally biased toward, and therefore the most excited about, companies that are growing at faster rates. They tend not to have as much interest in companies that lack growth opportunity. This typically causes them to focus on true growth companies, in turn helping to neutralize style drift danger.
Lastly, it is understandable that consultants focus a portion of their due diligence efforts on firm stability. The challenges of the last few years directly correlate to turmoil at a number of firms, particularly larger firms where career prospects may have dimmed for many of their team in this environment. At some of the smaller, independent firms, though, owner/portfolio managers are naturally more committed to their firm's future. At the end of the day, the most important stability factors are those that affect the clients' portfolios.
Chadd's Ford, Pa.