Paul Hechmer was a star international equity portfolio manager at Tradewinds Global Investors. But that star has burned out since he launched his own shop — del Rey Global Investors LLC.
Assets under management at the 5-year-old global and international equity firm soon will drop to about $12 million, after hitting a high of $2.4 billion at the end of June 2012.
Del Rey, Los Angeles, had $321 million as of Dec. 31, according to eVestment LLC, Marietta, Ga. That includes about $300 million from Merrill Lynch, which is in the process of terminating del Rey from a wrap fee program, sources say.
It's quite a reversal for Mr. Hechmer, who had managed as much as $25 billion at Los-Angeles based Tradewinds.
When Mr. Hechmer formed del Rey, private equity firm Northern Lights Capital Group took a 25% equity stake for $3 million. Northern Lights also marketed the firm's investment strategies, helping to raise $1.8 billion of the firm's assets under management.
When the marketing agreement expired in early 2013, Northern Lights officials did not renew it, saying del Rey was not profitable and the firm's poorly performing strategies could not be sold to new clients, said one former del Rey official who asked not to be identified.
Mr. Hechmer said del Rey had developed its own two-person marketing and distribution staff and didn't need Northern Lights' help.
Today, no one markets del Rey. Mr. Hechmer confirmed the two marketers left because there wasn't enough potential new business.
Subadvisory relationships with Russell Investments, ING U.S. (now Voya Financial), SEI Investments, Renaissance Investments and CIBC Asset Management were terminated beginning in 2013; they made up as much as 75% of the firm's $2.4 billion in assets.
Most recently, the $18 billion Los Angeles Fire & Police Pension System on Jan. 7 terminated del Rey, which had managed $38 million, according to the minutes of the board's Jan. 15 meeting.
“Staff and (R.V. Kuhns & Associates, the pension fund's investment consultant) have been concerned about del Rey's performance for over a year,” said a memo from Paul Palmer, an investment officer with the plan. “As of Dec. 31, 2014, del Rey's performance since inception (in October 2012) trails its benchmark by 382 basis points. Recent personnel turnover at the firm and client departures have elevated staff's and RVK's concern over the direction of the firm.”
Tom Lopez, the pension fund's chief investment officer, said in a brief interview that investment staff also was concerned about the overall stability of the firm.
Data from eVestment show the international strategy, the firm's largest, returned -5.21% for the year ended Dec. 31, vs. -4.9% for the MSCI EAFE index, the manager's benchmark.
For three years, the strategy returned a compound-annualized 6.32%, vs. 11.06% for the benchmark. For five years, del Rey returned an annualized 3.11%; the benchmark is 5.33%.