Pension funds continue to allot money to minority- and women-owned management firms, but only some of those firms have shown significant growth.
Overall, assets managed by women- and minority-owned firms increased $16 billion, or 7.2%, in the 12 months ended Sept. 30, based on 88 firms tracked by the database of eVestment Alliance, Marietta, Ga. At least half of each manager is owned by minorities or women.
The three firms that gained the most assets over that time period are: RhumbLine Advisers Corp., up 35% with $5.1 billion in new assets; Fred Alger Management Inc., up 48% with $4.3 billion; and GlobeFlex Capital LP, up 64% with $3 billion. RhumbLine now manages $19.5 billion, Fred Alger manages $13.4 billion and GlobeFlex manages $7.6 billion, according to eVestment Alliance.
Executives at those firms say it is hard to know how much of their growth is due to pension funds investing more assets in emerging manager programs. Other factors, such as performance, certainly played a role, they said.
In terms of whether we get business because of (minority ownership), its not clear. Sometimes it is, and sometimes it isnt, said Wayne Owen, chief executive officer of Boston-based RhumbLine.
He attributes much of the firms growth to the increasing popularity of passive investing for U.S. equity, especially in the small-cap and midcap universes where the returns of some active managers have been subpar.
He also attributed the firms growth to a burgeoning number of Sudan-restricted investment portfolios as more public pension funds and endowment funds are required to get rid of their holdings of companies that do business in Sudan. RhumbLine runs $4.6 billion in Sudan-related portfolios.
Fred Alger Management is almost completely owned by women but its not something we make central to our efforts in terms of marketing, said Zachary Karabell, an executive vice president at the New York firm
He attributes much of the firms new assets to rising demand for growth-stock portfolios. He also said the firm hired many new staff members in 2002, who are just now establishing a five-year track record.
Marina Marrelli, GlobeFlexs CEO, San Diego, said much of the firms growth came in its U.S. small-cap growth strategy, which has $262 million in assets and an international all-cap equity strategy, which has $1.1 billion. She declined to share performance numbers for the two strategies.
She said mandates that specifically seek out female- or minority-owned firms make up a relatively small part of our growth.
Funds seek managers
Many pension funds are boosting their efforts to hire minority- and women-owned management firms.
People on public fund boards are reflecting the diversity of their beneficiaries, said Thurman White, president and chief investment officer of Progress Investment Management Co. LLC, San Francisco, a manager of emerging managers.
Emerging managers are typically classified as firms that are female-owned, minority-owned or just simply firms that have a small amount of assets, often $2 billion or less.
Most pension funds are encouraged by their boards and legislatures to invest with more minority- or women-owned firms, but performance is still paramount, several public pension staff members said.
For example, the $112 billion New York City Retirement System in 2006 hired two different managers of emerging managers, Progress and FIS. The system also added emerging managers Stamford, Conn.-based Capital Prospects LLC, Chicago-based Attucks Asset Management LLC and San Francisco-based Bivium Capital Partners LLC in November. NYCERS executives declined to say how much was awarded to individual managers.
Pension fund officials often look for emerging managers with the idea they will hire more minority- and women-owned firms, but they also do so to find new investment talent.
We ask our managers of managers to make their best efforts to engage female- and minority-owned firms, but we dont want to leave alpha on the table said Joseph Haslip, assistant comptroller for pensions at the New York City comptrollers office.
That same sentiment exists at the $40.1 billion State Retirement & Pension System of Maryland, Baltimore, which hired Northern Trust Global Advisors, Chicago, in April as a manager of emerging managers. Northern Trust has awarded $370 million to nine different managers, five of which are owned by women or minorities.The expectation was that minority- and female-owned firms would be selected, said R. Dean Kenderdine, executive director of the Maryland system. It was anticipated that would be the case, but it was not a requirement of the procurement. He declined to say which managers were selected.
Northern Trust still needs to hire one more emerging manager for Marylands retirement system, Mr. Kenderdine said.
The $68.7 billion Pennsylvania Public School Employees Retirement System, Harrisburg, plans to allocate roughly $500 million to emerging managers in the future, on top of $444 million now. No timetable was given for when those funds will be allocated.
And the $42.3 billion Illinois State Teachers Retirement System has increased the goal it has set for assets to award to minority- and female owned firms to $5 billion for fiscal year 2008, up from its current level of roughly $4.86 billion. The $176 billion California State Teachers Retirement System and the $250.4 billion California Public Employees Retirement System, both of Sacramento, have also stepped up efforts to hire more minority- and female-owned firms.
In 2006, the two pension funds jointly set up a database of emerging managers that is available, free of charge, to other institutional investors through alturacap.com. CalPERS also has implemented its second manager development program, aimed at making venture investments in as well as allocations to emerging managers. Piedmont Investment Advisors LLC, Durham, N.C., is the only manager selected for that program to date.