Ariel Investments LLC, Chicago, battered by the bear market and loss of institutional clients, plans to diversify its investment strategy by buying stocks in companies with less than $500 million in market capitalization.
The so-called micro-cap value strategy will be headed by David Maley, 48, once he joins Ariel next week after running his own firm since 2002. Ariel, an initial investor in Mr. Maley's Maple Hill Capital Management LLC, will assume management of Maple Hill's $6 million portfolio.
"I'll be trying to do essentially the same thing but with a whole lot more resources," said Mr. Maley, who wouldn't disclose performance figures or portfolio holdings of Glencoe, Ill.-based Maple Hill. He did say that assets in the private partnership started with $2 million and peaked at more than $10 million before shrinking.
He worked at Goldman Sachs & Co. before managing money for Harris Bank, something he continued to do until last month while simultaneously running Maple Hill.
Micro-cap stocks, many trading well below tangible asset values, represent an opportunity for Ariel, whose assets under management, in larger stocks, have dwindled to $3.7 billion from $21.4 billion in 2005.
"A lot of micro caps are pretty cheap right now," said Michael Breen, a Morningstar Inc. analyst who follows Ariel. "They've gotten hammered pretty badly."
Ariel President Mellody Hobson called the move "a great brand extension for Ariel."
It will broaden the scope of the firm's research and give Ariel's hard-pressed sales force another product to market.
Ariel's three mutual funds, with about $1.5 billion in assets, have trailed benchmarks over the last few years. Disappointed institutional investors in separate accounts, most recently the $12.1 billion Chicago Public School Teachers Pension and Retirement Fund, have fled the funds.
But Ariel said it has turned the corner.
Since the beginning of this year, the decline of the midcap Ariel Appreciation Fund has been less than half of the 6% fall in the S&P 500 index, according to Lipper data.