AXA Rosenberg faces a major battle in restoring its reputation and regaining its footing in the quantitative investment world.
Even the announcement on Dec. 1 that the Orinda, Calif., firm had named a new CEO and chief investment officer might not be enough to restore credibility, consultants say. Revelations that the founder and other top officials didn't disclose a coding error in the firm's investment model are very troubling, consultants agree.
Richard Graf, a Houston-based investment consultant and partner with Corinthian Cove Consulting LLC, said AXA Rosenberg executives will face difficulty convincing investment consultants to give the firm another chance.
“The consultant community, particularly after Bernie Madoff, has become extremely sensitive to any integrity issues,” said Mr. Graf. “Business is so competitive and there are plenty of firms that have done everything properly. There is no reason for a consultant to recommend a firm with problems.”
Mr. Graf said the best course of action for AXA Rosenberg's parent, Paris-based AXA Group Inc., might be to drop the Rosenberg name and fold the operation into another money management subsidiary, such as AXA Investment Managers or AllianceBernstein LP.
“The sooner the better,” he said, noting AXA Rosenberg's problems could taint its parent.
AXA Rosenberg officials, in an e-mailed response to questions from Pensions & Investments, said they remain committed to the firm as a stand-alone investment management organization, although sales and distribution will be integrated with AXA Investment Managers. AXA Rosenberg is a division of AXA Investment Managers.
“AXA Investment Managers remains strongly committed to AXA Rosenberg as the independent global quantitative equity expert within its multiexpert model,” Heidi Ridley, global head of investment strategy and communications at AXA Rosenberg, wrote in the e-mail.
Sources familiar with the company, who declined to be identified, said AXA's U.S. sales staff will be cross-trained to sell some of AXA's IM's products to the U.S. market. AXA Investment Managers, with more than $500 billion in assets under management, now markets its investment strategies only outside the U.S.
According to data from the firm, AXA Rosenberg had $33 billion in assets under management as of Sept. 30, down from more than $70 billion as of Dec. 31, 2009.
A mid-November filing with the Securities and Exchange Commission shows just how far the firm has fallen. AXA Rosenberg reported to the SEC that the firm has $1.9 billion in assets under management. A source familiar with the company's books, who declined to be named, said that's how much is being managed for U.S. clients. By contrast, AXA Rosenberg reported nearly $16.9 billion under management for U.S. clients as of last Dec. 31, according to Pensions & Investments' annual survey of money managers.
AXA Rosenberg's problems with clients began in April, when the company revealed that founder Barr Rosenberg and several other investment officials had failed to disclose to top executives an error in the firm's mathematical risk-modeling software. The error caused the software to understate some common risks in its portfolio optimization system.