In big diversification push, Pennsylvania treasurer hires 11 emerging, minority managers

HARRISBURG, Pa. — Pennsylvania’s Treasury Department has awarded a combined $400 million to 11 emerging or minority-owned money management firms, part of a broader revamp of the department’s operations to improve efficiency and oversight while enhancing returns, said Treasurer Robin L. Wiessmann.

In an interview, Ms. Wiessmann called the emerging managers program a “perfect example” of her department’s efforts “to provide more diversification in our portfolio,” even as credit markets have buffeted investors over the past year.

The new accounts for the Opportunity Fund the Treasury unveiled in June include $300 million to seven fixed-income portfolios and $100 million divided among five equity mandates.

Bellevue, Wash.-based GW Capital Inc. was the only manager to receive two mandates: a $37.5 million high-yield bond allocation and another $23 million for “smidcap” value equities.

Five managers received equal core fixed-income mandates of $45 million: Alexandria, Va.-based Hughes Capital Management Inc.; Durham, N.C.-based Piedmont Investment Advisors LLC; Davis Hamilton Jackson & Associates LP and Smith Graham & Co. Investment Advisors LP, both in Houston; and Seattle-based Pugh Capital Management Inc.

Utendahl Capital Management LP, New York, will invest $37.5 million for the Opportunity Fund in mortgages, benchmarked to the Lehman Brothers Mortgage Bond index.

Of the remaining equity mandates, three went to Pennsylvania-based managers: Symons Capital Management Inc., Pittsburgh, with $23 million in all-cap value; Biondo Investment Advisors LLC, Milford, with $23 million in all-cap growth; and Cameron Capital Management LLC, Radnor, with $8 million in small-cap core equities. Hanseatic Management Services Inc., Albuquerque, N.M., will manage $23 million in small-cap growth equities.

The program, overseen by Harrisburg-based investment consultant PFM Asset Management LLC, is part of a broader diversification of state investment pools launched by Ms. Wiessmann, who replaced Robert P. Casey Jr. as treasurer at the start of 2007 after he defeated incumbent U.S. Sen. Rick Santorum in the 2006 mid-term elections.

Ms. Wiessmann, a capital markets veteran who helped found investment bank Artemis Capital Group in 1990 and led the firm through the end of the decade, agreed at the time of her appointment not to seek re-election in 2008 to the treasurer’s post, which has been a stepping stone to higher political office in the Keystone State.

In an interview, Ms. Wiessmann said she has used her two-year window of opportunity to further modernize an already well-functioning department. After an asset allocation study earlier this year against the background of market turbulence, the Treasury staff determined its core investible balance — that part of the state’s funds that can be invested on a long-term basis — was $4.2 billion, roughly a billion dollars less than previously assumed, she said.

That determination, combined with the goal of further diversification, led in June to a significant redistribution away from the treasury’s previously concentrated mandates, in which four managers had been looking after 70% of the department’s externally managed assets.

With that redeployment, King of Prussia-based Valley Forge Asset Management Corp. now manages $483 million in a number of asset classes for the state Treasury, down from $1.869 billion, while affiliate Valley Forge Trust Co., which had managed $722 million, was terminated. Nashville, Tenn.-based Weaver C. Barksdale & Associates Inc. looks after $148 million, down from $773 million; and Swarthmore Financial Advisors Ltd. manages $255 million, down from $718 million.

In the coming months, the Treasury’s diversification push will include allocations to new asset classes, including international stocks and bonds, real estate investment trusts, opportunistic mortgages and Treasury inflation-protected securities. Ms. Wiessmann said another $900 million in mandates are likely to be awarded by September.

While the market environment has remained challenging as her term draws to a close, Ms. Wiessmann said she’s looking to make sure the department is “up to current institutional investing standards,” with the kinds of culture and policies in place to allow the department to “continually redefine itself.”

Contact Douglas Appell at [email protected]