SEATTLE The 2005 closing of Rainier Investment Management Inc.s flagship smidcap strategy hasnt slowed growth of the firms assets under management.
The Seattle-based firm managed $14 billion in mostly institutional assets as of June 30, nearly double the $7.6 billion it managed at the end of 2005.
Most recently, new inflows have gone into Rainiers relatively new midcap growth equity portfolio and its 7-year-old large-cap growth strategy, which is just now coming into favor, said Leonard Brennan, president and chief executive officer at Rainier.
The large-cap growth strategy grew to $1.3 billion as of last month, from $50 million a year ago, said Mr. Brennan. Of that, $675 million is from one account, though Mr. Brennan declined to identify the client. The strategy had $20 million in assets at year-end 2005.
The $450 million midcap growth strategy grew from $182 million in the six months ended June 30, according to data from eVestment Alliance, Marietta, Ga. It had $2 million in assets in 2005.
Returns for both have been strong. The large-cap growth strategy returned 23.6% in the year ended June 30, topping the Russell 1000 growth index by 4.54 percentage points. The midcap strategy, which launched in October 2005 just before the smidcap strategy closed, has returned 26.44% since inception, outperforming the Russell MidCap Index by 10.44 percentage points. For the year ended June 30, it returned 33.72%, beating the benchmark by 12.88 percentage points.
Along with the $7.9 billion flagship smidcap equity portfolio, Rainier also runs a $3.6 billion large-cap core portfolio, a $674 million balanced portfolio with a 60% allocation to equity and 40% to debt, a $575 million all-cap equity strategy, and a $441 million moderate duration fixed-income strategy, according to eVestment. All assets under management are as of June 30.
The firm has focused on expanding to 401(k) platforms and also has begun responding to requests for proposals overseas, said Mr. Brennan. The firm also opened offices in New York to be closer to the subadvisory business it hopes to lure in.
There is a focus on becoming more widely available to different types of investors, said Mr. Brennan.
No slowdown ahead
Executives at Rainier dont see the boom slowing down any time soon. They believe a new focus on growing its subadvisory business coupled with strong performance across the bulk of its products will continue to drive asset growth.
Executives at the firm anticipate about 20% of total assets will come from subadvisory relationships in the next three to five years, from the current 3.5%. They also want to tap increased interest in investment programs like mutual fund wraps or lifecycle funds, he added.
Underscoring the firms interest, Rainier hired Brian Bader in late July as its first director of subadvisory sales and client service.
The large-cap core and large-cap growth (products) are particularly well suited for subadvising, said Mr. Brennan. Both can handle large inflows and outflows without disturbing the investment process, he said.
And he believes there is a demand for large-cap growth. Its an area where investors, particularly individual investors, have underallocated in their portfolios, he said.
Rainiers large-cap growth strategy was launched in 2000, when value stocks were coming into favor and growth began to take a back seat. Now there is a recognition that you want to equally weight growth, not just value, said Mr. Brennan.
Its been a difficult market for growth managers in general, said James Ayres, institutional account manager and director of research at investment consulting firm Pacific Portfolio Consulting LLC, Seattle. Investors have had a difficult time finding growth managers that do well without bastardizing the product, and drifting out of their style, he said.
He gives kudos to Rainier for sticking to a pure growth strategy. This is more of an old-school, very traditional stock-picking product. Its on our list of recommended products.
But the plain-vanilla aspect of the portfolio makes it ill-suited for subadvisory platforms, said Mr. Ayres. I like it by itself but Im not sure Id like it paired up with another manager, he said, adding that usually managers with vastly divergent strategies are paired up to complement each other.
Chip Roame, managing principal at Tiburon Strategic Advisors, Tiburon, Calif., said the firms clear investment strategy will work for Rainier. Managers looking for subadvisers will also appreciate the firms institutional history.
Theyre pretty institutionally oriented, so that makes them attractive in the subadvisory (market), he said. Those offering the platform can tell individual investors, were bringing you the fancy manager you couldnt get before, he said.