Letters to the editor

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.

JOHN LARSON

managing director

Gardner Lewis Asset Management

Chadd's Ford, Pa.

I would like to ride on the coattails of Donald B. Trone, president of the Foundation for Fiduciary Studies, regarding the potential costs to investors as a result of investment management consultant conflicts of interest. In his letter in P&I May 12, Mr. Trone mentions the pay-to-play schemes that consultants place on investment managers.

The typical pay-to-play scheme is not something as vulgar as asking for a brown bag with small, unmarked bills. Instead, the subtler approach used is the consultant providing "portfolio analysis services" to the investment manager for a fee. "We can help you identify your strengths and weaknesses in portfolio management," the line goes.

Alternatively, consultant firms that also are registered securities broker-dealers can employ a different angle. A consultant may steer a qualified plan client to a particular investment manager. ERISA rules, in the interest of best execution, would frown on the investment manager directing brokerage of that qualified plan client to the consultant's broker-dealer arm. So, the investment manager doesn't. Instead, the investment manager directs the brokerage of other clients to the consultant's broker-dealer arm. Hard to track, huh?

I sit on the investment board of two non-profit organizations, one of which recently went through the process of selecting an investment management consultant. The average board member was unaware of all the subtle games that can be played at their expense. I made certain that the right questions were asked of the consultants and certain stipulations were placed on the consultant we did hire.

It must be said that there are "straight arrow" consultants out there. However, given the state of affairs and the direction that the Securities and Exchange Commission seems to be heading, it might very well be that the consultant field is the next area for regulation.

TODD C. GANOS

portfolio manager

Doolittle Investment Counsel

Carmel, Calif.

Columbia Management Group undercounted its assets under management for its profile on page 34 in Pensions & Investments' May 26 directory of money managers.

Columbia Management's correct worldwide institutional assets as of Dec. 31 were $54.593 billion, and the firm's U.S. institutional tax-exempt assets were $32.021 billion.

ROBERT BIRNBAUM

managing director

head of institutional

Columbia Management Group

New York