BOSTON — Last week’s lift-out of eight international quantitative equity portfolio managers from State Street Global Advisors could leave a $30 billion chunk of the Boston-based giant’s fast-growing active equity business in the penalty box.
The defection of Paul Moghtader, formerly a managing director of non-U.S. developed market equities, and seven colleagues in Boston and London to New York-based Lazard Asset Management already has led one major client — the $54.2 billion Massachusetts Pension Reserves Investment Management board — to drop SSgA.
Michael Travaglini, PRIM’s executive director, said Boston-based PRIM terminated SSgA as manager of a $930 million “alpha select” portfolio managed by Mr. Moghtader’s team. Eight of the nine people responsible for managing PRIM’s money joined Lazard, Mr. Travaglini said, calling the exodus just the latest in a string of key departures from SSgA in recent years.
Mr. Moghtader and his colleagues had helped manage roughly $30 billion in SSgA client assets.
Other clients are holding tight for now. “It’s a significant event, but we’re going to stand pat for now,” said Gary Bader, chief investment officer of the Alaska Department of Revenue, Juneau, which has roughly $420 million in an SSgA international equity portfolio that had been run by the departed quant team members. Alaska will “see what SSgA’s plans (are) for running the money moving forward, and then we’ll make a decision.”
Some consultants struck a similar tone. “We’re not advising any action on the part of current clients … nor are we putting them in searches, until we see what SSgA does to rebuild” the team, said the head of research with one investment consultant, who declined to be named.
SSgA executives said they’ve moved quickly to fill immediate gaps — moving Didier Rosenfeld, a portfolio manager on SSgA’s “alpha select” international quant team since 2000 from Tokyo to replace Mr. Moghtader as Boston team leader; tapping Mark Webster, a 16-year veteran in London to replace Susanne Willumsen as London team leader; and adding Rick Lacaille, formerly CIO of Europe.
“We have our bases covered,” Arlene Rockefeller, SSgA’s equities CIO, said in a recent interview. While it’s always disappointing to see colleagues leave, the departures involved only one of seven active equity teams at SSgA, and just one-third of that specific team, she said.
Satisfied for now
Indeed, SSgA’s reshuffling has satisfied some consultants for now. “We’re not making any recommendations to our clients to move their money elsewhere,” said David Lee, director of manager research at Dahab Associates Inc., a Bay Shore, N.Y.-based investment consultant. Dahab advises several pension funds with assets invested in SSgA’s active international strategies. “We’ve evaluated the departures and the replacements and will monitor the situation closely,” he added.
Moreover, none of the professionals with SSgA’s 36-member Advanced Research Center, which does the heavy lifting in building the firm’s quantitative models, has left. With an extremely deep bench, SSgA can proceed “thoughtfully” in vetting internal candidates to replenish its international developed markets portfolio management team, she said.
Even so, the latest departures come at a difficult time for SSgA, only months after a number of its active fixed-income strategies, including purportedly low-risk offerings, suffered heavy declines when credit markets seized up in July and August. The money manager is facing at least three lawsuits from clients over those losses.
SSgA’s active equity assets, at $216 billion, and its roughly $36 billion in active fixed-income assets, accounted for less than 15% combined of the $1.994 trillion the firm reported managing at the end of the third quarter, but those segments have been enjoying stronger growth rates in recent years than SSgA’s bread-and-butter passive strategies.
For example, data provided by SSgA showed compounded annual growth for its active equity assets of 39% between 2002 and 2006, compared with overall asset growth of 23%. Between the end of 2006 and Sept. 30, 2007, SSgA’s active equity assets grew another 19%, outpacing the 14% growth of overall assets.
Even with the latest departures, SSgA’s active equity engine should continue to hum, Marc Brown, the firm’s chief marketing officer, said in a recent interview. The current year has been SSgA’s best ever in terms of boosting assets under management, and “most of our success has been in the (active) equity side.”
SSgA lost a few clients last week and it might lose a few more, but the firm has conducted a full-court press reaching out to clients and consultants since Dec. 17 and for the most part the reception has been positive, Mr. Brown said, noting SSgA even won a few active equity mandates. He declined to identify the clients.
While agreeing there’s no need for clients to act abruptly, some consultants said the experience of the portfolio managers who left, and the track record they helped build, will leave SSgA with something to prove as it rebuilds the firm’s international quant team.
Michael Rosen, principal and chief investment officer of consultant Angeles Investment Advisors LLC, Santa Monica, Calif., said the eight professionals who left might have been only a third or so of the broader team, but they were among the most important members of that team. Angeles advises a religious foundation with $30 million in an international small-cap strategy run by the outgoing team.
The rest
Besides Mr. Moghtader, the investment professionals joining Lazard’s new Boston office are portfolio managers Craig Scholl, Taras Ivanenko, Ciprian Marin, Peter Kashanek and Alex Lai. They will be joined by Christopher Pope, formerly SSgA’s director of U.S. institutional sales, client service and consultant relations who left the firm in late 2005.
In London, SSgA’s loss of Ms. Willumsen, its former managing director and head of active European equity, and portfolio manager Jason Williams will also be Lazard’s gain.
SSgA’s international alpha select strategy — which had $9.3 billion in assets as of Sept. 30, according to the database of eVestment Alliance, Marietta, Ga. — has consistently outperformed the MSCI Europe Australasia Far East index since its January 2000 inception. The strategy has delivered a return of 26.1% for the 12 months through Sept. 30, as well as compounded annual returns of 27% and 27.2%, respectively, for the past three and five years.
