The Fruits of Discipline

John W. Rogers Jr. and Ariel Capital Management have harvested huge returns through a 'slow and steady' approach to asset management

mutual funds side of the business only. And he had built a strong enough reputation in the Chicago area to begin expanding his staff. He recruited McKissack as director of research in 1986, launched the Appreciation Fund in 1989, and enjoyed a solid performance until the early 1990s.

As his mutual funds lagged the performance of their peers during the early ’90s, scrutiny of the Ariel investment style surfaced. By 1991, Hobson, a former intern, had joined the team and prodded Rogers to break away from Calvert in 1994 so that Ariel could reach its true potential.

The move “wasn’t due to any negative feelings about Calvert,” explains Hobson. “It was about trying to manage and control the messages our customers, shareholders, and valued partners were getting, and what their perception of what Ariel stood for at that point. We weren’t sure that they would be able to weed through two company messages and come away with the themes that we thought were most important.”

This was the moment of truth for Ariel: standing on its own after several years of moderate performance. Again, Rogers demonstrated the will to forge ahead but admits it was the most difficult time he has faced in business. Ariel paid Calvert $4 million as part of the separation package, and the firm lost $100 million in assets when customers balked at staying with the firm.

Soon, rogers says, Ariel’s investment strategy was out of favor and “We went from managing $2.3 billion to $1.1 billion over a short period of time, and it was extraordinarily uncomfortable and frightening.”

But the move paid off as fund performance improved. He began to innovatively spread his “slow and steady” gospel through such vehicles as the sponsorship of a stock ticker at Chicago Bulls games during the team’s heyday and partnerships with professional organizations like the Black M.B.A. Association.

At one point, it seemed their disciplined portfolio management style stood in the way of Ariel’s success. The firm experienced poor performance in 1999 at the height of a bull market driven by dotcom mania, challenging its resolve to stick to patient investing. “It was very easy two years ago for people to get pulled away from their principles if they were value managers. People found excuses to add this tech stock, this dotcom company, or this new issue to their portfolio. We didn’t succumb to any of that pressure,” says Rogers. “When value came back in favor we benefited completely, while a lot of our peers only partially benefited because they had moved away from their core strategy during the growth stock bubble of the late ’90s.”

The next hurdle for Ariel is living up to the standard of excellence it has set. “We have to make sure that we have the human and systems resources to manage the growth that we’ve seen,” says McKissack.

With the launch of the new growth fund and the firm’s higher profile, Rogers sees a prime opportunity to push for his funds to be included as a selection in

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