Fisher Investments sees more investors jump ship

The toll exacted by asset owners for Kenneth L. Fisher's sexist comments made at a conference earlier this month is $3 billion and counting.

In an age of heightened acceptance of environmental, social and governance investing principles and growing insistence that money managers increase gender diversity and inclusivity within their firms, sources said many institutional investors have a low tolerance for gender denigration by Mr. Fisher, executive chairman and co-chief investment officer of active equity manager Fisher Investments Inc., Camas, Wash.

Mr. Fisher talked about genitalia and compared winning asset management clients to "trying to get into a girl's pants" during his Oct. 8 presentation at Tiburon Strategic Advisors LLC conference in San Francisco, attendees said.

In a statement to the firm's employees obtained by P&I, Mr. Fisher admitted "some of the words and phrases I used during a recent conference to make certain points were clearly wrong and I shouldn't have used them. I realize this kind of language has no place in our company or industry. I sincerely apologize."

The firm managed a total of $112 billion worldwide in active U.S., international and global equity strategies as of Sept. 30, $35 billion of which was from 175 institutional investors and money manager subadvisory assignments, according to its website.

Despite Mr. Fisher's apology, the damage was done for some institutional investors. Ten asset owners and two money managers from Fisher's client base have terminated their investments in direct response to Mr. Fisher's remarks.

For example, investment officials of the $9.2 billion New Hampshire Retirement System, Concord, said in a statement that Mr. Fisher's comments were "not only offensive and inappropriate, they are incompatible with the values of the retirement system and bring into question Mr. Fisher's judgment."

The fund's investment committee terminated Fisher Investments from management of a $239 million active core international equity portfolio on Oct. 22. The pension fund first invested in the Fisher strategy in 2001.

Other investors confirmed to P&I that Mr. Fisher's crude comments were the catalyst for their terminations of the firm:

The $74.5 billion Michigan Retirement Systems, East Lansing, terminated Fisher Investments on Oct. 10 from management of a $600 million U.S. midcap equity strategy.

Commissioners of the $23.9 billion Los Angeles Fire & Police Pension Fund approved termination of a $551 million active core international equity mandate managed by Fisher Investments Oct. 24 by a narrow 5-4 vote.

Fidelity Investments Inc., Boston, terminated Fisher Investments as a subadviser running $500 million in active U.S. small-cap equities on Oct. 18.

The $34 billion Iowa Public Employees' Retirement System, Des Moines, on Oct. 18 terminated Fisher Investments' $386 million actively managed U.S. equity portfolio.

The $28.5 billion Texas Employees Retirement System, Austin, announced Oct. 25 it is defunding Fisher's $350 million international equity portfolio.

Boston Retirement System's board of trustees unanimously voted to terminate Fisher's $248 million international equities mandate on Oct. 16.

The $5.4 billion Philadelphia Board of Pensions and Retirement terminated Fisher Investments on Oct. 10 for management of $54 million in U.S. equities.

Air Products and Chemicals Inc., Allentown, Pa., terminated Fisher Investments for management of $30 million from the company's $2.7 billion defined benefit plan. The investment strategy of the mandate could not be learned.

Also, the $212 million Westfield (Mass.) Retirement Board terminated Fisher from a $4.3 million investment and the University Hospital Health System, Cleveland, axed a $26 million Fisher Investments portfolio, according to Bloomberg. The health system had $864 million in pension plan assets and was invested in a Fisher emerging markets equity strategy as of Dec. 31, according to its most recent Form 5500 filing.

John Dillard, a Fisher Investments spokesman, declined to comment on terminations by some of the firm's investors. He shared an internal memo to Fisher Investments employees from CEO Damian Ornani, which provided a breakdown of the firm's senior employees by gender, showing 30% female among managers and 23% of employees holding positions of vice president or higher are women.

Mr. Ornani and four other senior managers from Fisher Investments attended a special meeting of the Los Angeles Fire & Police fund on Oct. 24 to address questions from commissioners.

Mr. Ornani apologized for Mr. Fisher's offensive comments on behalf of the firm, noting that Mr. Fisher has "sincerely apologized" for his comments and will not make them again, the meeting audio stream showed.

Mr. Ornani described the new diversity and inclusivity task force he is setting up and promised to report the progress it makes to the board of commissioners.

During the meeting, each board commissioner expressed abhorrence regarding Mr. Fisher's comments, but it was Brian Pendleton, a commissioner and vice president of the board, who made the motion to terminate Fisher Investments, the audio stream showed.

Given mounting terminations by other asset owners, Mr. Pendleton urged fellow commissioners to support termination because "if we don't terminate, we risk being the last investor out the door."

In response to Mr. Pendleton's comment, Mr. Ornani told commissioners that Fisher Investments' worldwide assets under management were $110 billion on Oct. 8, the day Mr. Fisher made his comments, and had risen to $114 billion as of Oct. 22.

Assets managed for institutional assets now total $34 billion and are evenly split between U.S. and non-U.S. clients, Mr. Ornani said.

He added that the firm's recent terminations are coming from only a "subset of U.S. institutional investors," representing about 10% of the current $34 billion from asset owners. The remaining 90% of institutional assets "continues to grow exactly as it did" before Mr. Fisher made his comments, Mr. Ornani said.

Given the focus on ESG principles by asset owners, Fisher Investments is likely to see more terminations, sources said.

"Fisher Investments doesn't pass the ESG test," said Michael Falk, a partner at Focus Consulting Group Inc., Long Grove, Ill., a consultant to money managers.

"If you are managing your institutional portfolio using ESG principles, why wouldn't you be ready to get rid of Mr. Fisher, given that his comments violated the social norms of ESG? Divesting from Fisher Investments is exactly the same as cutting a firm which violated ESG standards from your portfolio," Mr. Falk said.

Consultant NEPC LLC, Boston, recommended that its clients terminate Fisher Investments, according to a client memo obtained by P&I.

NEPC consultants said in the memo that Mr. Fisher's remarks sparked a due diligence review by its unfavorable news committee. They said Mr. Fisher's response in a letter to investors "showed a lack of understanding and appropriate contrition for his behavior. The combination of Mr. Fisher's behavior, the subsequent investor letter, and high-profile redemptions lead us to question the sustainability of the firm."

NEPC said in the memo that it has a fiduciary duty to act in the best interest of clients "who now hold assets at a firm facing large and high-profile redemptions. The confluence of these factors leads us to recommend that clients terminate holdings with Fisher Investments."

NEPC spokeswoman Kerry Mullen declined to comment on the firm's termination recommendation.

The New Hampshire and Boston plans are NEPC clients.

Other NEPC clients invested with Fisher include the $101.4 billion Ohio Public Employees Retirement System, Columbus, with $840 million in international equities; the $1.7 billion Louisiana Firefighters' Retirement System, Baton Rouge, with $105 million in core international equities; and the $2.5 billion Chicago Policemen's Annuity & Benefit Fund, with $102 million in U.S. small-cap value equities as of Dec. 31.

Ohio system spokesman Michael Pramik declined to comment on the fund's investment, and officials from the other two plans could not be reached for comment.

Many other asset owners have already or will review their allocations to Fisher Investments in the coming months but not all immediately will initiate termination, observers said.

Trustees of the $28.3 billion Mississippi Public Employees' Retirement System, Jackson, voted during an Oct. 22 meeting to place Fisher Investments on its watchlist for organizational concerns, said H. Ray Higgins Jr., executive director, in an email. The defined benefit plan has invested $558 million in an actively managed emerging markets equity strategy managed by Fisher Investments.

"As fiduciaries, we must always act in the best interest of the system and our members. Placing (Fisher Investments) on our watchlist is the prudent step within our process as we evaluate the effect on our portfolio, review alternatives and continue to monitor the situation," Mr. Higgins said.

At a regular board meeting on Oct. 21, trustees of the Iowa Peace Officers' Retirement, Accident and Disability System, Des Moines, made it clear that they found Mr. Fisher's comments "offensive and not in line with the values of the system," said Karen Austin, chief of staff in the office of state Treasurer Michael L. Fitzgerald, in a voicemail message. The treasurer's office oversees investment of the $533 million defined benefit plan.

But conscious of their fiduciary duty to the pension fund, Ms. Austin said trustees "did not want to take any rash actions" regarding the fund's $83 million managed by Fisher Investments in active U.S. small-cap value equities. The board will monitor the investment going forward, she said.

Analysis of the culture of a money management firm and the behavior of its employees are key factors in the due diligence process, consultants said.

"The question is what is the appropriate role of personal conduct in evaluating a manager's suitability to manage money?" said Michael A. Rosen, managing partner and chief investment officer of Angeles Investment Advisors LLC, Santa Monica, Calif., in an email.

"We see placing money with a firm as an expression of trust and partnership with that firm. There is no relationship we have in which the personal qualities of our prospective partners is not of paramount concern. We would not invest with a manager with questionable ethics, regardless of track record or perceived investment acumen," Ms. Rosen said.

Angeles provides investment consulting services to and manages $4.2 billion in discretionary assets for institutional and wealth management clients. The firm does not invest with Fisher Investments.

James Comtois, Brian Croce, Rob Kozlowski, Danielle Walker and Bloomberg contributed to this story.

The Fisher exodus

Funds terminating Fisher Investments in the wake of Kenneth L. Fisher's controversial comments, as of Oct. 25.

Plan/subadvisor

Date announced

Assets (millions)

Philadelphia Board of Pensions

Oct. 10

$54

Michigan Retirement Systems

Oct. 10

$600

Boston Retirement System

Oct. 16

$248

Air Products and Chemicals

Oct. 18

$30

Fidelity Strategic Advisors

Oct. 18

$500

Iowa PERS

Oct. 18

$386

Mississippi PERS*

Oct. 22

$558

New Hampshire Retirement System

Oct. 22

$239

Los Angeles Fire & Police Pension Fund

Oct. 24

$551

Goldman Sachs

Oct. 25

$234

Texas Employees

Oct. 25

$350

*On watchlist. Source: News reports