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Money manager

Looming exit of CIO is putting Vontobel under a microscope

Longtime deputy Matthew Benkendorf is taking the reins as Vontobel Asset Management’s CIO.

Some funds terminate equity manager, others placing firm on watch

Several U.S. asset owners are either terminating their investments with Vontobel Asset Management Inc. or putting them on watch because of the upcoming departure of Rajiv Jain, co-CEO and chief investment officer of the money manager's “quality growth equities boutique.”

Vontobel executives are hoping to assuage client fears by naming Matthew Benkendorf, Mr. Jain's longtime deputy, as his successor and explaining what the firm plans to do after Mr. Jain leaves in May.

Recent examples of clients either dropping or considering replacing Vontobel include the $14.6 billion Illinois State Board of Investment, Chicago, which terminated Vontobel's managing of $534 million in active large-cap international equities.

The $1.1 billion San Luis Obispo County (Calif.) Pension Trust, for which the manager runs about $130 million in international equity, is conducting a search for a possible replacement, but the trust hasn't determined whether a change will be made.

Also, Oklahoma Police Pension & Retirement System, Oklahoma City, plans to issue an RFP for an emerging markets equity manager to replace Vontobel, which managed about $60 million in a similar strategy for the $2.1 billion pension fund.

The $638 million Oklahoma City Employee Retirement System terminated Vontobel as manager of a $19.5 million emerging markets equity strategy in March.

And the $1.2 billion Chicago Metropolitan Water Reclamation District Retirement Fund terminated Vontobel from managing a $61.8 million international large-cap equity strategy.

Executives of all the asset owners cited Mr. Jain's departure from Vontobel as the reason for either terminating or considering terminating their relationship with the money manager.

Vontobel Asset Management, a New York-based global investment management subsidiary of Zurich-based Vontobel Holding AG, has 69 employees and 26 investment professionals and $48.1 billion in assets under management. The quality growth equity strategy is run out of New York.

Despite these client redemptions due to Mr. Jain's departure, a spokesman for Vontobel said the company is reorganizing how the strategy is being run.

For starters, Mr. Benkendorf, a 17-year veteran of the firm, is taking over the CIO and portfolio manager roles.

“Matt has been running the European and U.S. portfolios and has served as Mr. Jain's deputy for many years. Nothing is changing in terms of idea generation or portfolio implementation,” the spokesman said.

Executives at Vontobel declined to comment.

The spokesman added: “In terms of portfolio management, with Matt at the helm there might be changes in timing and sizing, but he is a very experienced portfolio manager with a proven track record.”

The spokesman said Mr. Benkendorf intends to add other people to the 22-person team. Mr. Benkendorf doesn't have a fixed number of people to add in mind. Discussions about roles and responsibilities are being held right now and the company plans to make an announcement about team members as soon as possible.

Mr. Benkendorf has also been named lead manager on some strategies, while Brian Bandsma and Donny Kranson also have been named as lead portfolio managers.

Before Messrs. Bandsma and Kranson were appointed lead portfolio managers of Vontobel's Far East equity and European equity strategies, respectively, they both served as deputy portfolio managers to these strategies since 2013.

The company is reaching out to clients and consultants to explain its new structure and approach. Mr. Benkendorf is meeting with clients to explain the investment team structure and strategy. The meetings that have been held so far have generally gone well, the spokesman said.

Performance is not the issue. Vontobel's growth equity strategies returns have been stellar, according to data from eVestment LLC, Marietta, Ga. Vontobel's U.S. growth equity strategy returned 8.55% for the year ended Dec. 31, vs. 1.38% for its benchmark, the S&P 500. Its five-year annualized return was 15.5%, vs. 12.57% for the benchmark; its 10-year return was 8.8%, vs. 7.31%. Meanwhile, Vontobel's global growth equity strategy returned 5.5% for the year ended Dec. 31, vs. -2.36% for its benchmark, the MSCI All Country World index. Its five-year annualized return was 11.45%, vs. 6.09%, while the 10-year return was 9%, vs. 4.76%.

Client withdrawals can be a problem with strategies that are closely tied to one person, said one consultant who has been following Vontobel and asked not to be named.

There are some managers that are team-driven organizations, and there are others where individuals are presented as having very significant influence on the strategy. Change in those latter firms “are much more disquieting for everyone involved,” he said.

It's also possible that a number of these clients had key-man risk clauses in their contracts with Vontobel.

Sources in the money management industry have heard that Mr. Jain is looking to establish his own boutique management firm after he leaves Vontobel. However, despite terminating their relationship with Vontobel because of his departure, the asset owners with which P&I spoke not only did not know Mr. Jain's future plans but said they wouldn't automatically follow him.

“We do not know where (Mr.) Jain is going. We focus more on the firm and the team so it is unlikely we would have any particular interest in following one particular” portfolio manager, said Carl Nelson, executive secretary and CIO of the San Luis Obispo County Pension Trust.

Steven K. Snyder, executive director and CIO of the Oklahoma Police Pension & Retirement System, also said members of the retirement system did not know where Mr. Jain was going.

Mr. Snyder added: “Since we do not know where he is going, we, obviously, are not planning on investing in his new firm.”

Susan Boutin, executive director of the Metropolitan Water Reclamation District Retirement Fund, explained that the funds managed by Vontobel were being transitioned into an index fund, and “if the trustees decide to hire an active manager in the future, a RFP would be required for a search.”

Mr. Jain could not be reached for comment. n

Reporter Meaghan Kilroy contributed to this story.

This article originally appeared in the April 18, 2016 print issue as, "Looming exit of CIO is putting Vontobel under a microscope".