BOSTON The Boston Co. Asset Management, hit by the loss of more than $10 billion in client assets in recent months, named a new chief executive officer and a new chief investment officer to spearhead the next phase of the companys growth.
At a time company executives are still waiting out performance issues in some traditional, long-only strategies, officials said the new management lineup will focus on developing alternative investment strategies.
David H. Cameron will quarterback that next growth phase as the new president and CEO; John Truschel, director of portfolio strategy, will assume Mr. Camerons CIO position. Corey A. Griffin relinquishes his CEO role, yet retains his post as chairman.
Mr. Cameron said non-traditional strategies are a fast-growing fraction of the firms business, with a number of new offerings due over the next six months.
Mr. Griffin called the new focus and executive lineup the outcome of a longer-term planning exercise focused on where we were, where we are and where were going.
If the firms long-range plans call for balancing its long-only business with a healthy dose of hedge funds, 130/30 strategies and structured products, its immediate challenge is limiting the damage to the international strategies $30 billion in value, $20 billion in core that drove the firms growth to $76 billion under management as of June 30, vs. $21 billion at the end of 2002.
The more than $10 billion in client money that left Boston Co. during August and September came after the majority of the hot international core equity team left to join Munder Capital Management in Birmingham, Mich., Robert P. Kelly, CEO of parent company Bank of New York Mellon Corp., said in an Oct. 17 earnings call.
Worst is over?
During the same conference call, BNY Mellon Asset Management Chairman Ronald P. OHanley predicted the worst of Boston Co.s outflows were over.
But October brought signs that the core teams departure was also aggravating client doubts about Boston Co.s struggling international value equity team. That strategy continues to sport stellar 10-year returns, but lagged its MSCI EAFE benchmark by an annualized 272 basis points a year for the three years through June 30, with steeper shortfalls of 312 basis points and 473 basis points, respectively, for the two-year and one-year periods, according to data from eVestment Alliance, Marietta, Ga.
Mr. Cameron said clients who can wait for the inevitable end of the current go-go market cycle dominated by momentum and net flows into international equities will be rewarded. The international value equity portfolios embedded return potential when market valuations finally revert to historic means could be on the order of 2,000 basis points, he predicted.
The worst thing that we can do right now is to abandon an approach that is historically solid, Mr. Cameron said.
Some big institutional investors appear to be running out of patience, however.
During the first week of this month, the $64.1 billion Pennsylvania Public School Employees Retirement System, Harrisburg, and the $50 billion Massachusetts Pension Reserves Investment Management Board, Boston, terminated Boston Co. from international value equity portfolios of $1 billion and $1.2 billion, respectively.
Another large investor, the $8 billion Employees Retirement System of Rhode Island, Providence, put Boston Co. on watch for performance of its $550 million international value equity portfolio.
Its not a situation where patience is necessarily a virtue, said Matthew Rice, chief research officer at DiMeo Schneider & Associates, a Chicago-based investment consulting firm. If youre struggling when everyone else is struggling, thats one thing. But if youre struggling when the markets are strong and the wind is at your backs, then that raises some questions.
If the markets recent turbulence was supposed to cut Boston Co.s less cautious competitors down to size, third-quarter performance numbers only brought more disappointing news.
According to eVestment Alliance, the emerging markets value equity strategy, which had just less than $10 billion in client assets as of June 30, trailed the benchmark MCSCI Emerging Markets indexs gain for the third quarter by more than 700 basis points. And while that strategys 44% gain for the 12 months through June 30 leaves clients with few reasons for tears, the benchmark index gained 58.6% in that same period.
Kenneth Goodreau, Rhode Islands deputy treasurer for finance and a pension plan trustee, said Logically I understand the situation and can see the (potential for) performance accelerating ... But as a fiduciary, I cant have managers not living up to what they are supposed to produce for too long a period of time.
Mr. Griffin conceded the difficulties, but said Boston Co. as a whole remains strong and poised for growth. He said the firm has won 44 mandates so far this year for a combined $1.4 billion in assets, and is competing for a number of others. Weve got a lot of great things going on here, he said.