Herndon Capital Management has been hemorrhaging clients, with several asset owners citing performance as the reason they dropped the Atlanta-based manager that largely focuses on large-cap equities.
But the company's executives say they are confident in its investment strategy of fundamental, bottom-up, stock research and are certain things will turn around. They plan to stay the course.
Herndon Capital, a minority-owned firm that is 55% owned by Atlanta Life and 45% owned by its partners, is an active long-only manager. Its flagship offering is a large-cap U.S. value equity strategy.
“We saw some downside in the performance of our flagship strategy, which has resulted in some attrition,” said Drake Craig, a principal, portfolio manager and president of Herndon Capital in a phone interview. “It's the normal part of the asset management business.”
There was a stretch where the boutique manager was on a roll. Data from Pensions & Investments Research Center data the firm's global AUM had been on the rise from year-end 2008 to year-end 2013.
“We experienced impressive (AUM) growth earlier prior to the past two years,” said Mr. Craig.
An investment banker that Pensions & Investments spoke with agreed.
“They were on a hot streak three years ago,” he said.
That hot streak came to an end in 2013. Herndon Capital's AUM has been cut in half in just two years. The manager's global assets under management totaled $5.15 billion at Dec. 31, 2015, down nearly 50% from $10.21 billion just two years earlier.
Although he hadn't been following Herndon's specific situation, one executive recruiter who asked not to be named said it is “not a good time to be an active, long-only manager” with subpar performance.
And performance for the firm's flagship strategy has been poor. Data from eVestment LLC show Herndon's large-cap U.S. value equity strategy returned -8.55% for the year ended March 31, vs. -1.54% for its benchmark, the Russell 1000 Value index. Its three-year annualized return was 4.15%, vs. 9.38% for its benchmark; its five-year annualized return was 6.81%, vs. 10.25% for its benchmark.