Illinois State Board of Investment, Chicago, terminated Ariel Capital Management from two active domestic smidcap value equity portfolios totaling $306 million, according to sources at the board, which oversees $14 billion in assets.
Performance and style drift were cited by Marquette Associates, investment consultant for the board's $11.4 billion defined benefit fund, and Iron Capital Advisors, investment consultant to the board's $2.6 billion deferred compensation fund, in recommending the terminations, according to the consultants' reports to the board.
The board hired RhumbLine Advisers to run the $178 million portfolio Ariel managed for the defined benefit plan; RhumbLine will run the money in a Russell 2000 value index fund, a new investment for the board. RhumbLine already runs a $672 million S&P 500 index fund for the board.
Ariel ran $128 million in active domestic smidcap value equities for the deferred compensation fund, and participants will have 30 days to move their money into other investment funds. Any money not transferred will be assigned to an existing active small-cap value fund run by Northern Trust.
John W. Rogers Jr., Ariel chairman, CEO and CIO, said he has been talking with ISBI officials about having them reconsider the deferred compensation plan termination. He disagreed with the consultant's analysis. which emphasized three-year performance and a drift away from small stocks.
"Ariel has expressed a desire and interest to have that matter reconsidered," said ISBI Executive Director William Atwood, but he said there has been no decision to do so. "On the staff level, we are going about the business of executing the decision of the board, transitioning to the other managers."
