LITTLE SILVER, N.J. - When seven portfolio managers at Fox Asset Management Inc. walked out last summer, they didn't just leave a hole in the company's investment process. They injured the firm operationally by taking the head of operations, two administration/ record-keeping individuals and even the company's bookkeeper.
Despite the quick effort of Fox's founder J. Peter Skirkanich to move people into the empty investment slots, alarmed pension funds are withdrawing money from the 13-year-old firm. Fox manages $5 billion total in mostly pension fund assets for more than 300 clients. So far, accounts worth more than $300 million have been withdrawn or placed under review by six pension clients.
The upheaval was ignited by two issues that are the constant seeds of war at asset management firms: long-term incentives and noncompete agreements.
The result? The departing managers started a competing firm around the corner from Fox, Osprey Partners LLC in Shrewsbury, which now manages about $1.5 billion in equity and fixed-income institutional assets.
They won't say how many clients were formerly with Fox, which continues to hold the group's performance record.
Pension reaction has been swift:
*The $600 million Orlando (Fla.) Public Employees' Retirement System terminated Fox in October and placed its $45 million large-cap value equity assignment with the departing managers at Osprey until it reviewed replacement candidates from a prior manager search, said Treasurer Bruce Harter.
*The $18.8 billion Teachers' Retirement System of Illinois, Springfield, terminated Fox, which had been hired in February to manage $175 million in large-cap value equity. Officials at the fund would say only that the money was distributed in part to Lincoln Capital Management Co., Chicago, which received $150 million to invest in large-cap growth stocks.
*Fox also was terminated by the $1.2 billion Metropolitan Government of Nashville & Davidson County Benefit Board in Nashville, Tenn., because of staff turnover, said Walter Messemer, investment committee chairman. Fox managed $40 million in small-cap equity.
*The $202 million Oil, Chemical and Atomic Workers Union Pension Fund, Lakewood, Colo., terminated Fox as a balanced manager, moving its $20 million account to Valenzuela Capital Partners and Sit/Kim International Investment Associates to managed midcap domestic equity and international equity portfolios, respectively. The firms will manage $10 million each.
*Fox's small-cap equity assignment is under review by the $250 million retirement plan of NUI Corp. in Bedminister, N.J., according to Treasurer Robert Lurie.
*Also considering a replacement for Fox is the $200 million plan of Blue Cross & Blue Shield of Texas Inc., Richardson, for which Fox manages $25.8 million in fixed-income investments.
Trouble began earlier this year when Mr. Skirkanich, Fox's 90% owner, began to plan his estate, according to people close to the situation. To provide stability for the company, he asked his longtime investment professionals to sign one-year employment contracts with three-year noncompete restrictions.
At the time, six investment professionals held a collective 10% ownership in the firm. Three of the lead managers had been with Fox for nearly 10 years.
The agreements contained future employment restrictions without an offer of further ownership unless Mr. Skirkanich died. Negotiations between Mr. Skirkanich and the managers were unsuccessful and the managers left, taking other staffers "who shared the same values," Osprey officials said.
"This has been very emotional and hard for us. Both sides were trying to resolve this and in the end, it was a great shame we couldn't work it out," said Russell Tompkins, Osprey chief operating officer, who at Fox was a midcap to large-cap equity manager. "We have nothing but good wishes for Peter."
Mr. Skirkanich, who is also Fox's president and chief investment officer, downplays the departures, including those of the four managing directors who had served with him on the firm's five-member investment committee. "They were predominantly marketing people," he said in a recent interview. "Some of them hadn't been involved in the actual investment process, although they were handling portfolios. They ran portfolios off the investment committee."
Pension funds that terminated Fox have, by and large, been funds that were new clients not acquainted with him, Mr. Skirkanich said. He has been on the road in recent weeks meeting with plan sponsors.
Regarding the equity holding, Mr. Skirkanich said he offered the employees additional ownership in the firm several years ago but they turned it down, despite its reasonable price.
Mr. Skirkanich does not believe the firm was damaged by the departures. He said he had been hiring new people all year, and moved many of those into the open positions. Nearly 30 people remained at the firm following the departures.
Portfolio managers Mr. Skirkanich moved into the investment committee are James O'Mealia, formerly with Sunnymeath Asset Manage- ment Inc., Redland, N.J.; George Pierides, formerly a partner at Windward Asset Management, Little Silver; John Sampson, formerly a principal at Pharos Management, New York; and Caroline Iacomino, formerly portfolio manager for Smith Barney Asset Management, New York.
"We've been growing 50% a year," Mr. Skirkanich said, referring to the company's overall growth in assets, staff and revenue. "These were just some people caught up in the growth side of things losing their focus."
Osprey's investment staff in addition to Mr. Tompkins consists of John Liang, chief investment officer; Paul Stach, director of fixed-income research; Jerry Fischer, head of equity research; and Van Whisnand, Douglas Salvati and Terry Potter, senior portfolio managers. Ling Hu is the team's information technology specialist.
All 11 former Fox professionals hold an interest in Osprey, and have signed noncompete agreements, Osprey officials said. The firm has hired six new non-Fox staff members as well.
Susan Barreto and Wendell Hutson contributed to this article.
