After 37 years, active value specialist manager AJO LP will cease trading Nov. 30 and close Dec. 31 after a steep decline in assets under management from investment losses and client redemptions.
Theodore R. Aronson, founder, managing principal and co-CEO of the active value manager, broke the news to investors in an Oct. 14 memo that was obtained by Pensions & Investments.
“A year ago, I didn’t see this coming,” Mr. Aronson said in an interview. "The confluence of events led us to a conclusion that was inexorable. There was just no way out. Over the last three to four years, we lost so many clients and performance was a problem. It began an avalanche, and we saw that we had to do what was right for clients and employees.”
AJO added a lot of value to many institutional portfolios over 37 years, but current conditions created a lot of business insecurity, said Gina Marie N. Moore, co-CEO, principal and portfolio manager, during the interview from the firm’s Philadelpha headquarters.
“Even if clients wanted to hang in there with us until value came back into favor, we had to ask ourselves how long could we make it until that happened. When the trip wires in this kind of situation are triggered, it creates a lot of employee insecurity, too,” Ms. Moore added.
In the client memo, Mr. Aronson said: "Our decision to close is in response to market forces. We still believe there is a future for value investment; sadly, the future is unlikely to arrive fast enough for us."
He said the firm's revenues are largely driven by U.S. mandates with a value tilt and noted in the memo that "our relative performance has suffered because our investment edge … is at odds with many forces driving the market."
He added that "the drought in value — the longest on record — is at the heart of the challenge. The length and severity of the headwinds have led to lingering viability concerns among clients, consultants and employees."
Mr. Aronson said during the interview that the firm manages a total of $10 billion for 44 institutional clients.
According to survey data provided by AJO to P&I for its annual money manager report, AJO’s current AUM is down 46.8% from $18.8 billion as of Dec. 31, 2019, and down 64.7% from $28.3 billion as of Dec. 31, 2016, the most recent high reported to P&I.
Mr. Aronson said AJO hit its peak AUM of $31 billion managed for 114 asset owners in 2007.
Among terminations of AJO this year for management of active large-cap U.S. value strategies were:
- The $4.5 billion Fresno County (Calif.) Employees' Retirement Association terminated AJO for management of an $111 million portfolio for performance reasons in August.
- In July, the $19.4 billion Los Angeles City Employees' Retirement System terminated AJO from a $183 million portfolio because its relative performance had not improved after three years on the pension fund's watchlist.
- The $2.9 billion Oklahoma Firefighters Pension & Retirement System, Oklahoma City, did not cite a reason for terminating AJO from an $80 million strategy in June.
Mr. Aronson and Ms. Moore said they have been on the phone with clients “a lot” over the past few days.
Ms. Moore said reaction to the firm’s closure from its investors surprised her a little.
“Overwhelmingly, they have been appreciative of what the firm has done for them. They don’t want to talk about the firm closing; they want to talk about how we all are doing and what will happen to our employees.”
She said many investors also were thankful that Mr. Aronson has been “such a strong voice for investors within the industry.”
“I really am OK. It has been a good ride and so much fun,” Mr. Aronson said, noting that one of his favorite things about AJO is the large portfolio of cartoons about the money management industry and investing that the firm has commissioned over the years and shared with investors and others on the firm’s website.
“I’m not going away,” he said. “I hope AJO people will stay together and do something different without me as head. I will be contribute capital to what they do and be a silent partner.”
