Shaw Wagener, a senior portfolio officer who heads institutional investment efforts and is one of five members of Capital's management group, acknowledged the firm had created silos, limiting institutional investors' choices.
“If you would have come to us six months ago, we would have said, "well, the only way you can have that (Capital World Growth and Income Fund) is if you go buy the mutual fund, and if you don't want to buy the mutual fund, we can't offer it to you,'” Mr. Wagener said in an interview.
“Now what we're saying is, "we're going to deliver that investment service based upon the skill sets of these equity investment groups that have the best chance of success.'”
That best chance of success in the past likely was mutual funds, not institutional strategies.
Data from Morningstar Inc., Chicago, show that for the 10 years ended Dec. 31, American Funds on average had better performance among peers than the institutional side. Ten-year annualized numbers show that American Funds on average have been in the 34th percentile; CapGuardian's institutional strategies were in the 57th percentile. For the three years ended Dec. 31, American Funds ranked in the 38th percentile and CapGuardian, the 52nd.
Giving institutional investors the ability to pick more successful investment vehicles can help the Capital Group regain assets, said Morningstar analyst Janet Yang. “Performance speaks for itself,” she said. A decade ago, “picking Capital was a no-brainer.”
Over the past six years, Capital Group has been bleeding institutional assets, losing almost three-quarters between the end of 2006 — when AUM peaked at $321 billion — and the end of 2012, when institutional assets had dropped to $88.5 billion.
American Funds, which has a big defined contribution plan business as well as retail, has reported net outflows yearly since 2008, and has lost about 20% of its assets.
Just how much the asset drop has affected profits is unclear. The company does not release such data. Spokesman Chuck Freadhoff said the company retains a healthy balance sheet.
Allowing institutional investors greater choice could be a positive for Capital, particularly in cases where the mutual funds have outperformed the institutional strategies long term, said John Wasnock, senior research associate at consulting firm Wurts & Associates, Seattle.
For example, Mr. Wasnock said one of CapGuardian's biggest institutional offerings, the $11.7 billion international equity strategy, returned an annualized -2.3% for the five-year period ended Dec. 31. The American Funds EuroPacific Growth Fund, which uses a similar approach, returned -0.6%, in part because of its greater exposure to emerging markets.
For the 10 years ended Dec. 31, the mutual fund outperformed the institutional strategy by 50 basis points, an annualized 10.7% vs. 10.2%, he said.
Mr. Wasnock said Capital Group's team approach to managing portfolios means it's difficult to track the record of individual portfolio managers and understand why a portfolio is performing poorly.
Capital Group senior officials acknowledge they need to provide more information.
“There's a level of detail and information that, up until this point, we had not delivered in a satisfactory fashion from (clients' and consultants') perspectives — which is really all that matters,” said Kevin G. Clifford, president and CEO of American Funds Distributors and one of the five members of the board of directors of Capital Group.
Mr. Clifford said Capital will soon begin sharing detailed information with institutional consultants as to portfolio managers' investment approaches and holdings.
The bottom line, however, is performance.