Mazama Capital Management Inc. has lost 85% of its assets since its peak in 2006, but Ron Sauer, president and chief investment officer of the growth equity manager, says the best days are still ahead.
Mr. Sauer insisted in an interview that the decline in assets — to $1.024 billion at the end of 2009 from $7.297 billion at the end of 2006 — is over.
But skeptics question whether the uncertain economy will have enough momentum to spur growth stocks to new heights.
“There are no concerns; our business has picked up dramatically,'' said Mr. Sauer. “ We are adding two new accounts in July; one of them is one of the largest pension plans in the nation,” he said.
The corporate pension fund client will bring an initial commitment of $100 million, said Brian Alfrey, Mazama's chief operating officer. Mr. Alfrey said Mazama will act as a subadviser for the second client, a European-based UCITS, the European version of a mutual fund. That client could contribute upward of $300 million over the next year to Mazama's assets under management, Mr. Aflrey said.
Mr. Sauer added that several existing clients are also considering increasing their investments and he has been talking to several other potential new clients. He said he could not provide specifics.
Underlying Mr. Sauer's assumptions of a comeback for his Portland, Ore., firm, however, is the belief that growth managers will once again show that their style can be a winning one.
The track record has not been consistent.
“We had a tremendous 2009, we had a tremendous 2003,” Mr. Sauer said. “They were the only recent good years for growth managers.”
In 2009, Mazama's U.S. small-cap/midcap growth strategy — which accounts for 53% of the firm's assets — returned 57.34% and in 2003 it returned 77.55%, beating the Russell 2500 Growth benchmark of 41.65% and 46.31%, respectively.
The problem was three of the five years in between in which Mazama underperformed the Russell 2500 benchmark.
The biggest underperformance was a dramatic -52.07% in calendar 2008. The benchmark that year lost 41.5%.
Despite Mazama's improved performance since 2009, the board of the $32.1 billion Teachers' Retirement System of Illinois, Springfield, decided at its meeting on June 24-25 to keep Mazama's small-cap/midcap strategy on the fund's watchlist. The fund took action because Mazama's three-year trailing return of -7.76% continued to underperform the benchmark's -1.67%.The fund's investment accounts for $133 million of the $545 million in assets in the Mazama small-cap/midcap growth strategy, according to data from the fund and eVestment Alliance, Marietta, Ga.
TRS first placed Mazama on the watchlist at the end of 2007, said spokesman David Urbanek.
“The small-mid qualifies for continued placement on the watchlist in 2010 based on 11 consecutive quarters where the firm's three-year return has lagged behind the portfolio's benchmark,” he said in an e-mail response to questions.
TRS also kept Mazama on watch for a second strategy, U.S. small cap. Illinois Teachers comprises $160 million of the $177 million strategy, according to eVestment Alliance and Illinois Teachers.
Mr. Urbanek said the strategy had underperformed on its three-year returns for 16 consecutive quarters, lagging the Russell 2000 Growth index.
Mr. Sauer said the U.S. small-cap strategy had returns of more than 50% in 2009, beating the 34.47% benchmark. Its first-quarter 2010 return of 9.11% also topped the index, which rose 7.61%.
For the three-year period ended March 31, the strategy returned an annualized -8.63% compared with -2.42% for the benchmark, according to eVestment Alliance.