WHV Investments sees assets plunge by nearly half in 2 years

WHV Investments Inc.'s assets under management have plummeted to $6.8 billion as of June 30, down 48% from two years earlier.

Most of the drop came in the firm's flagship international equity strategy, which accounts for $6.1 billion, or about 90% of the firm's remaining assets. That strategy had more than $10 billion as of June 30, 2013, data from eVestment LLC show.

Andrew Turner, president and CEO of San Francisco-based WHV Investments, acknowledged in an interview that poor performance in that strategy led to the asset drain.

“I don't think I know of a strategy that hasn't ever been on a bad performance run, and we're on one,” Mr. Turner said.

The strategy has seen $1.8 billion in net outflows in the period between Dec. 31, 2012, and June 30, 2015, according to eVestment data.

Mr. Turner, who took over the helm at WHV in January 2013, said he is confident the international team — led by Richard Hirayama, managing member and senior portfolio manager — will regain its footing.

For now, the asset decline has pushed Mr. Turner further away from his goal of turning WHV into a midsize firm. In a 2013 interview with Pensions & Investments, Mr. Turner said he wanted to build WHV's assets under management to between $50 billion and $100 billion within three years.

As part of that effort, Mr. Turner has been implementing a plan to acquire stakes in other money management firms and then entering into a subadvisory arrangement with the firms.

Last year, WHV acquired a 15% stake in money management firm EAM Investors LLC in Cardiff-by-the Sea, Calif., branding its small-cap equity funds as joint WHV/EAM offerings.

WHV made the investment in EAM, which has $1.4 billion in assets under management, alongside Northern Lights Capital Group, the Seattle buyer of money management firms. (Mr. Turner used to be the chairman of Northern Lights, which since has merged with Treasury Group Ltd. in Australia.)

WHV also purchased last year an undisclosed stake in Acuity Capital Management LLC, with $138 million under management. Acuity focuses on corporate credit investing and is based in Greenwich, Conn.

Mr. Turner also is expanding WHV's investment staff.

Last month he brought on a New York City-based international/global equity investment team from Victory Capital Management Inc.

He also is negotiating with another investment team to join WHV but said any additions likely won't happen this year. He would not provide specifics.

Mr. Turner said WHV allows each team to be an autonomous group without the worry of interference from WHV executives.

And that is a policy to which he is holding for the international strategy, despite its poor performance.

In the 12 months ended June 30, the international equity composite returned -19.2%, while its benchmark — the MSCI Europe Australasia Far East index —returned -4.2%, according to eVestment. For the three years ended the same date, the compound annualized return was 4.66% vs. the EAFE's 11.97%; for five years, 6.89% vs. 9.54%; and for seven years, -2.24% vs. 1.97%.

But for the 10-year period, the strategy topped its benchmark by 302 basis points and since, inception, it has topped it by 688 basis points.

WHV also has experienced poor performance in its global equity strategy, also run by Mr. Hirayama, as well as its domestic small-cap equity strategy.

Mr. Turner said he has no plans to interfere with Mr. Hirayama's investment strategy, which identifies key global sectors and then specific industries within them. Materials posted on WHV's website state that the strategy has emphasized energy, material and industrial sector stocks for the past 15 years.

“I think it's almost invariably a mistake for persons other than team members to meddle with the strategy,” Mr. Turner said. “That is a classic mistake. I see it happen over and over again. And it's far better to bet on the people and the strategy and realize that there are a combination of circumstances that may lead the strategy to underperform.”

But Mr. Turner has not been shy about closing some of the company's smaller underperforming equity strategies. An emerging markets strategy and a domestic large-cap strategy were closed in the fall of 2013.

As for the international strategy, Mr. Hirayama, said in an interview that he expects performance to rebound as the global economy picks up in the fourth quarter. He said positive economic trends in emerging market countries will help spread demand for companies worldwide that supply materials, energy and industrials, the core sectors in which he invests.

He said lagging performance has been due to the muted economy.

“The world today is running only on four cylinders, instead of six or eight,” he said.

Clients are not as patient.

Most recently, the $840 million Clearwater (Fla.) Employees' Pension Fund terminated its $30 million investment in WHV's international strategy July 13. A month earlier, the $116 million Sunrise (Fla.) Police Officers' Pension Fund pulled its $4 million investment.

“Obvious underperformance” was the reason the Clearwater plan terminated WHV, said Finance Director Jay Ravins in an e-mail.

Agenda materials for the board's July 13 meeting said WHV was hired in April 2008 and investment performance was “good (55.98% return and 15th percentile ranking in 2009), but performance has steadily declined over recent years.”

John Griffith, senor investment consultant partner at CapTrust Advisors, Clearwater's investment consultant, said his firm understood the strategy and felt a “certain amount of respect for it.” But the international strategy had made heavy bets in industrial, energy and materials sectors and his firm feels those sectors “will remain out of favor for a long time.”

“They were looking for value in sectors that they felt were undervalued; we did not want to wait it out,” Mr. Griffith said.

Despite the performance issues, Mr. Turner, backed by WHV owner Laird Norton Co. LLC, said he has the money he needs to expand.

Laird Norton CEO Jeff Vincent said in an interview that WHV is making a profit “We are trying to find good (money) managers,” he said. “We are committed to building the business.” n