Aristotle execs hope to repeat early success

(updated with correction)

Howard Gleicher and Gary Lisenbee are out to prove they can strike investment gold for a second time.

The pair has reunited at Aristotle Capital Management LLC, hoping to repeat the winning investment performance that propelled the success of their first value equity firm, Metropolitan West Capital Management LLC.

Mr. Gleicher launched Los Angeles-based Aristotle in October 2010; Mr. Lisenbee joined in June of this year.

The firm has about $5 billion under management. One of its newest clients is the University of California, Oakland, which allocated $400 million to Aristotle's large-cap value strategy in late August, said university spokeswoman Dianne Klein. The assets are from the university's $45.1 billion retirement plan and $7.1 billion general endowment pool.

Messrs. Gleicher and Lisenbee, along with Steve Borowski, formed Metropolitan West in 1997. They sold the a majority controlling interest of the firm to Evergreen Investments, whose parent was Wachovia Corp., in June 2006, but continued working there in top management spots.

Mr. Gleicher was CEO and chief investment officer at Metropolitan West. Mr. Lisenbee was president, succeeding Mr. Gleicher when he left to form Aristotle. Mr. Borowski was a managing partner.

Concerns over the acquisition of Wachovia by Wells Fargo & Co. in January 2009, which resulted in Evergreen Investments becoming part of Wells Fargo Asset Management, led Messrs. Gleicher and Borowski to leave the following year and start Aristotle.

The timing was right. Mr. Gleicher and Mr. Borowski said the non-compete agreements they signed when the business was sold to Evergreen had expired.

Mr. Lisenbee then took over as CEO and CIO of Metropolitan West because he felt a fiduciary responsibility. “I felt it would have been most disruptive to the business if all of us left,” he said in a recent interview. He also had a more practical reason to stay: a seven-year non-compete agreement he signed when the firm was sold to Evergreen.

Mr. Lisenbee said that when his non-compete expired he moved to Aristotle to rejoin many of his colleagues from Metropolitan West. “For me it was an opportunity to be back with people that I respect tremendously in this industry and enjoy working with.”

Mr. Lisenbee said working with a smaller firm allows for more nimble investing, something that disappeared in part when Metropolitan West gave up its independence.

“If you work in a large financial institution, you have to go through channels ... strategic decisions have to be cleared in New York or Boston and go through committees and it take a couple of months and you might lose that opportunity,” he said.

He would not cite any specific examples.

Mr. Borowski became Aristotle's president when the firm opened in October 2010, and heads sales and marketing.

Messrs. Gleicher, Lisenbee and Borowski had worked together at Palley-Needelman Asset Management Inc., which they left to from Metropolitan West. Palley-Needelman has since closed.

Eight other Metropolitan West staffers also have joined Aristotle since the beginning of 2013, said Mr. Gleicher.

He said about 80% of Aristotle's assets under management are institutional, but wouldn't provide a client list. Sources said the firm's institutional clients include many non-profits such as Barium Springs Home for Children, Earl B. & Loraine H. Miller Foundation, the International Society of Neurochemistry and the Living Desert. Corporate clients include Pacific Air Industries Inc.

Aristotle acquired a majority stake in money manager Reed, Conner & Birdwell LLC in July 2011, which accounts for about $1.6 billion of Aristotle's AUM.

One investment consultant, who requested anonymity, said Mr. Lisenbee could help in gaining new business. He said Mr. Gleicher, while considered a great investment mind, does not like to meet with institutional consultants and prefers to devote his time to stock selection.

Mr. Gleicher acknowledged his passion is stock selection, noting he spends 85% of his waking hours to that purpose. Still, he added, he talks with consultants and clients when appropriate.

Aristotle has had an advantage in attracting inflows because its key principals have had a good long-term track record at other firms, said Janie Kass, a managing partner with Margolis/Kass Advisors Inc., San Francisco, a consulting firm to money managers. As a result, investment consultants aren't that concerned about the firm's age.

While the investment team has a strong long-term record, performance has been challenged since Aristotle opened. The Aristotle value equity strategy, which accounts for more than 90% of the firm's assets, posted an annualized return of 13.12% from its inception on Oct. 31, 2010, to Aug. 31, 2013, according to eVestment LLC, Marietta Ga.

That compared with the Russell 1000 Value index return of 15.06% during the same period.

For the longer term, the story is different when taking into account the performance at Metropolitan West.

For the 10 years ended June 30, the strategy returned an annualized 12.37% compared with the benchmark's 7.79%, according to eVestment.

The firm ranked in the second percentile in eVestment's universe of 283 large-cap value strategies for the 10-year period.

Mr. Gleicher said three years is too short of a window for his buy-and-hold strategy, and the firm's shorter term results are skewed by a poor second quarter this year. He said the firm had a strong recovery in the most recent quarter, but those results aren't out yet.

“I don't focus on individual years or quarters,” he said.

Mr. Gleicher said many value managers have struggled since the financial crisis because they put too much emphasis on valuations when they choose companies. “I would say that other value investors see valuation alone as a reason to own a stock,” he said. “We do not.”

He said company fundamentals are important, as are opportunities for growth. Mr. Gleicher also looks for company setbacks that might lower a stock's price temporarily, but can be overcome. He began buying the stock of Walgreen Co. in January, confident from his research that the pharmacy chain would be able to regain customers lost during a fight with the largest pharmacy benefits manager in the U.S., Express Scripts Holding Co.

The stock, which started the year at $38.06, closed at $54.85 on Sept. 26. n