The mounting fallout from quantitative firm AXA Rosenberg Investment Management's recent admission that key managers didn't provide timely information about coding errors found last year in its computer models shows the perils of suffering fiduciary lapses during a stretch of weak performance.
“Quants are all suffering at the hands of the market, but AXA Rosenberg is the only firm being done in by its own scientists,” noted Donald H. Putnam, the San Francisco-based managing partner of investment bank Grail Partners LLC.
In an April 15 letter to clients and consultants, Global CEO Stephane Prunet and Americas CEO William E. Ricks conceded the coding errors — discovered in June and fixed by November — weren't reported “in a complete and timely manner by senior investment officers as required by the firm's policies.” Promising a full review, with outside experts called in to help determine the impact on investment returns, the executives noted that Barr Rosenberg, the firm's chairman, would take a 30-day leave while Thomas Mead, the director of the Barr Rosenberg Research Center, would leave within a year (Pensions & Investments, April 19).
Market watchers predict serious ripple effects — over and above the more than $600 million in client money pulled from the firm in the initial flurry of responses to its April 15 revelations.
Last week, the $142.8 billion Florida State Board of Administration, Tallahassee, became the latest — and most prominent — client to terminate AXA Rosenberg.
Spokesman Dennis MacKee said the board voted April 21 to terminate the firm from a $400 million domestic equity mandate awarded in 2008, following a “comprehensive evaluation of the situation.” He said those assets are being divvied up among existing managers.
Florida joins other public funds — including the $10.3 billion Montana Board of Investments, Helena, and the $1.6 billion City of Fresno (Calif.) Retirement System — in terminating the quantitative manager.
Montana terminated the firm from a $39 million active international equities mandate awarded in the second half of 2006, according to CIO Cliff Sheets. The Fresno fund reclaimed more than $100 million in a large-cap domestic equities mandate it had awarded in 2005.
Parent company AXA “is the victim here, even more so than the clients,” said Mr. Putnam. “In the end, it's likely we'll discover that the portfolio effects (of any coding errors) were minimal or nonexistent, but a fiduciary organization cannot easily cope with its investment leadership appearing less than forthcoming with the facts.”
The growing list of investment consultants urging their clients to terminate the firm lends support to that view.
Gatekeepers turning sour on the Orinda, Calif.-based money manager include Hammond Associates, NEPC, Rogerscasey Inc., Wurts & Associates Inc., Wilshire Associates Inc. and R.V. Kuhns & Associates Inc.