Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Regulation
    • SECURE 2.0
    • Special Reports
    • Washington
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • ESG Investing | Industry Brief
    • Innovation in ESG Investing
    • 2023 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • The Plan Sponsor's Guide to Retirement Income
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2023 Defined Contribution East Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Research Center
    • The P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Canadian Pension Risk Strategies
    • 2023 Retirement Income
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
September 28, 2021 01:46 PM

Ted Aronson returning with new focus, firm and partners

Douglas Appell
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    Aronson_ted_2020_wide_paytouse
    Photo: Ryan Strand Greenberg

     Ted Aronson’s new firm, AJOVista, is set to open with $1 billion in assets under management, anchored by a Missouri pension plan.

    A year after quant manager AJO LP announced it would shut down and return roughly $11 billion to clients amid a crushing five-year drought for value stocks, Ted Aronson, the Philadelphia-based firm's founder, is launching a new boutique in tandem with Boston-based HighVista Strategies LLC's systematic investment team.

    Mr. Aronson said in an interview that the new firm — AJOVista — is set to open its doors Oct. 1 with roughly $1 billion in client money, focusing on less efficient market segments such as emerging markets small-cap stocks and U.S. microcap stocks.

    The firm is getting off the ground with the backing of a key institutional client, the $10.2 billion Missouri Local Government Employees Retirement System, Jefferson City, which is carrying over roughly $400 million in AJO mandates as well as taking a one-third stake in the venture.

    Related Article
    AJO Partners to close at year-end

    Despite the similarity in names, AJOVista will look radically different from AJO, which at its peak before the global financial crisis had 74 people and $31 billion in assets under management — 90% in the firm's flagship U.S. large-cap value strategy.

    This time around, "we're 15 people, all … involved with investing" — roughly equal in size to AJO's investment team. "Everything else is outsourced," Mr. Aronson said.

    Jesse Barnes, co-managing partner of HighVista, will become CEO of AJOVista, and Chris Covington — who played a key role in launching AJO's emerging markets small-cap strategy in 2013 before joining HighVista five years later to build out its systematic equity capabilities — will be chief investment officer.

    Mr. Aronson and Gina Moore, his co-CEO at AJO, will be co-heads of business development and communication, as well as members of the new firm's investment committee.

    The quick turnaround for AJO's founder owed a considerable amount to serendipity, with Mr. Covington playing a key role as go-between. He reached out to Mr. Aronson in October 2020 when news of AJO's looming shut down surfaced to ask about the emerging markets strategy he had helped set up there. "I wanted to be respectful of the situation and not come across as a vulture trying to pick over the carrion … but the emerging market process there has been great since day one (and) it would be a shame to see something like that go away," Mr. Covington said in an interview.

    Mr. Aronson said AJO's emerging markets small-cap strategy accounted for $1.2 billion of the firm's $10.6 billion in AUM when he and Ms. Moore decided to close the firm.

    Brian K. Collett, CIO of Missouri LAGERS, said that his fund had $155 million allocated to AJO's emerging markets small-cap equities strategy — with annualized returns since inception of 335 basis points above the strategy's benchmark — when news of the firm's decision to close came out.

    Related Article
    Missouri Local Government Employees returns 29.5% for fiscal year

    The pension fund's other mandate with AJO, meanwhile, came at the March 2020 depths of the pandemic sell-off when Mr. Collett — anticipating a short, if wrenching, "down and up" market — asked Mr. Aronson to transform an existing $86 million LAGERS allocation to mega U.S. value stocks into a "COVID fund" of companies with strong balance sheets "that were going to make it through this fine," he said in an interview.

    AJO began shifting those funds the first week of April and the portfolio "did exactly what we thought it would do," Mr. Collett said. From the March lows through the end of 2020, the portfolio posted a return of 200% — or double the 100% gain for the benchmark Russell 2000 Value index over that period, Mr. Aronson said.

    With that positive experience as a backdrop, Mr. Collett said he wasn't eager to take up Mr. Aronson's offer of a refund. Instead, the pension fund CIO urged the money management veteran to "figure out a way to keep the party going."

    Mr. Collett told Mr. Aronson that LAGERS had backed other startup managers and it was prepared to back him if he could get enough people to keep LAGERS' two mandates with AJO going.

    Or, as Mr. Aronson recalled it, "They said 'well, we're not leaving. We don't want to leave. You guys figure it out. Keep running our mandates and by the way, we wanna invest in your new firm as an equity partner.'"

    That turn of events just opened up possibilities, said Mr. Aronson, adding "our heads were spinning."

    For HighVista's part, Mr. Barnes, in a separate interview, said the Boston-based firm's roughly $600 million systematic business was "a little bit of an odd duck" vis-à-vis its more than $4 billion alternatives business and there was a sense that at some point down the line it would do better as a separate business.

    The AJO "wind down" proved a catalyst, Mr. Barnes said. With the prospect of AJO's emerging markets baby being thrown out with the bath water, "we called them," initially with the thought of just taking it and running it.

    But it soon became clear that the two sides "clicked," Mr. Barnes said, with a shared focus on niche segments like emerging markets small cap, EAFE small cap and U.S. microcap; performance-based fees to achieve better alignment with clients; and a belief that equity in the firm should be distributed broadly across the team.

    With Mr. Covington having played a key role in both firms' systematic businesses, they had "the same DNA, a lot of cross pollination," Mr. Barnes noted. As the talks between AJO and HighVista progressed, a whole bunch of things quickly lined up, he said.

    It was "kind of like a snowball that kept rolling downhill," getting bigger and bigger, Mr. Covington agreed. But he said for him, it was Missouri's decision, back in December, not only to extend mandates to the new venture but to invest in it as well that convinced him "this thing could really happen."

    "Since then, we've been working feverishly" to get all of the new firm's ducks in a row and come the first of October, "we will be fully independent," Mr. Covington said.

    The new firm, meanwhile, will keep its distance from the large-cap U.S. equity space that AJO built its franchise on from the firm's founding in 1984.

    "Small, inefficient markets — that's where we want to make our money," as opposed to U.S. large cap where the eVestment database counts 1,200 active products, Mr. Covington said.

    Mr. Aronson said AJOVista will get off the ground offering four main strategies — emerging markets small cap; EAFE small cap; U.S. microcap; and an opportunistic strategy built on the success AJO enjoyed setting up Missouri's COVID-19 fund — with a $1 billion capacity limit for each.

    Messrs. Aronson, Barnes and Covington all agreed that those capacity limits shouldn't prove an obstacle to AJOVista building an attractive business.

    The average fee for U.S. microcap, EAFE small cap and emerging markets small cap is about 1%, Mr. Barnes noted. Managing $2.5 billion at 70 or 80 basis points would translate to $20 million of revenues, depending on AJOVista's success in delivering alpha for clients — a formula for building a great business, he said.

    Meanwhile, the new firm will put less emphasis on value as a factor than AJO did, Mr. Aronson noted. "Allowing value to go deeper and deeper and deeper in our portfolios as value got cheaper and cheaper and cheaper" was a fundamental mistake, which set the stage for "extended underperformance after the global financial crisis," he said.

    "There are many dimensions that are worth pursuing and we will pursue more of them," Mr. Aronson said. "We will never again pursue value into a rat hole."

    Related Articles
    AJO will close, but its cartoons will live on
    Missouri plans increase target private risk allocation
    Recommended for You
    BlackRock hires Coller Capital veteran as secondaries team co-head
    Wellington_Management_1550_i.jpg
    Wellington Management cuts head count by 5%
    Fiera Capital selects EMEA CEO to lead expansion
    Quest for Quality Amid Market Turmoil
    Sponsored Content: Quest for Quality Amid Market Turmoil

    Reader Poll

    May 1, 2023
     
    SEE MORE POLLS >
    Sponsored
    White Papers
    Counting on a Crisis: A Catalyst for Investment Innovation?
    A Strategic Allocator's Guide to Productivity and Profits
    Biodiversity: why investors should care
    Quantifying sustainability – the numbers, the data, and the people
    Valuing Banks: Hidden Losses Versus Assets
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Regulation
      • SECURE 2.0
      • Special Reports
      • Washington
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • ESG Investing | Industry Brief
      • Innovation in ESG Investing
      • 2023 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • The Plan Sponsor's Guide to Retirement Income
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2023 Defined Contribution East Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Research Center
      • The P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Canadian Pension Risk Strategies
      • 2023 Retirement Income