Thurman White has made his career in asset management convincing investors that smaller is better.
As chief executive officer of manager of emerging managers firm Progress Investment Management Co. LLC, San Francisco, he has spent more than 15 years helping emerging managers grow. The firm tracks women- and minority-owned managers as well as those with relatively few assets under management, typically less than $2 billion.
While working as legal counsel for the California State Assembly, Utilities and Commerce Committee from 1982 to 1985, Mr. White crossed paths with Marx Cazenave, during oversight policy hearings about minority business procurement practices for utility companies. Mr. Cazenave later approached Mr. White about the possibility of an asset management firm catering to women- and minority-owned firms. But it wasnt until 1992 that Mr. White made the jump into asset management, joining Progress, which had been launched in 1990.
And now, I think its probably the best time that Ive seen in 16 years for emerging managers. As a policy notion, the idea has become institutionalized, said Mr. White. This industry looks different today than it did in 1990.
How long have you been in the business? Almost 16 years. I have known the founder of Progress, Marx Cazenave, over 20 years. He and I met when I was working in the state Assembly in Sacramento, and he was the first one to mention investment management to me in the early 1980s. I began (at Progress) in February of 1992.
What was the emerging managers landscape like then? We were the only minority-owned manager of emerging managers. By the time I joined, the firm had a little over $300 million in assets. It was still in the nascent stages of this whole idea of emerging managers. At that time, the term emerging probably hadnt even been coined yet. The focus was on women- and minority-owned firms almost exclusively.
It was an environment where people were trying to balance the whole idea of set-asides with fiduciary responsibility, and whether or not those kinds of ideas would be subject to legal attacks. So the whole idea of emerging was kind of coined as a term of art to include minority- and women-owned firms, but also to include other types of firms, be they small, be they new, who were also encountering the same barriers to entry. But the universe was a relatively small one at that time.
Managers offered mainly traditional asset classes? Yes, primarily equities. Some fixed income. There were very few, if any, private equity partnerships that were emerging at that time.
Was it a tough sell? The short answer is yes. The reasons are probably intuitive and obvious. There wasnt a lot of performance track record. These are all relatively new firms, so there was a perception that there was a disproportionate amount of risk associated with hiring smaller, newer firms. You have to think about the independent asset management industry in this county its a relatively new industry. It really grew up around ERISA in the mid-70s. So you didnt have a history or culture of including new portfolio managers, certainly not minority- and women-owned managers.
Some of the arguments that you make are still relevant today. The good news is that now were talking about 15 years later. We look underneath the firms history and look at the individual managers professional experience. The firm may not have a long track record, but today you will have people who have had 10 to 15 years of experience at other places who have started firms. So what you have is a higher quality and level of experience than what you had when we started Progress.
What happened with your 2001 attempt at a management buyout? In 1998, we sold Progress to Liberty Financial Co. Liberty, at that time, was a financial services holding company that owned a group of boutique asset management firms.
The synergies we thought we would get from that acquisition did not come to fruition. All these asset management firms were very disparate. No common marketing, no common operating platform, so no way to achieve any real economies.
By 2000, we were saying, I dont know if this is working because were not getting the synergies and weve given up our minority-owned, emerging manager status.
Liberty was acquired by Fleet (Financial Corp.) in 2001. It was around that time that we began the discussions about doing the first management buyout. That culminated with an agreement in principal around late 2002.
Around that time there was a big selloff in the markets. Our assets under management probably went down from a high of about $4.3 billion in January 2002 to about $3.7 billion, all market driven, by summer. At that point we entered into a dialogue about repricing and we got a polite no from Fleet. In the fall of 2002, Marx retired. The transaction didnt happen.
Our clients were disappointed. Obviously, some were concerned about Progress continuity in terms of leadership. And we also happened to have some mixed performance during that time. It was a perfect storm, and as a result we lost some clients.
Where did your assets under management bottom out? They probably bottomed around $3.4 billion (at the end of 2002). We started the process of going through every portfolio, trying to focus on improving investment performance. We were able to work out an agreement with Fleet that gave us a great deal of autonomy. We were able to establish a more robust bonus pool that became almost a proxy for not having equity.
How did you eventually become employee-owned? By the end of 2003, officials at Fleet probably knew the Bank of America transaction (Bank of America acquired Fleet in April 2004) was coming down the pipe and they approached me about doing a buyback again. My reaction was, You guys have got to be kidding. They were committed to making the deal happen.
In May 2004 we were able to buy back Progress. Sixty percent of the firm is owned by employees, and 40% is owned by the Massachusetts Bay Transportation Authority Retirement Fund, Boston.
Are there plans to be 100% employee-owned? Yes. In the very near future. (He declined to give more details).
You recently began offering a 130/30 strategy. What are other newer strategies are managers offering? Today, the bulk of our assets are in U.S. equities large, mid and small. You do have a growing number of emerging firms that have shorting experience. It may not be running 130/30 because those types of strategies are relatively new, but they have had experience running market neutral and other kinds of long/short strategies. International continues to be an area we see new managers taking on, as well as global strategies, both equity and fixed income.
Are investors as willing to consider emerging managers for those types of strategies as they are for more traditional asset classes? Increasingly. The short answer is not as much, but many investors today are asking us and others, What is the next evolution of emerging managers investment strategies?