the only firm seeking to expand its offerings. Pittsburgh-based MDL Capital Management (No. 9 on the be asset managers list) is set to launch load versions of its two flagship mutual funds this May in partnership with Fidelity Investments and SEI Investments.
BEATING THE BIG BOYS
Executives at several asset management firms note that while some institutions, especially public entities, are committed to hiring minority money managers, these set-aside programs often are for much smaller pieces of business. They add that minority firms that accept such small allocations are at a disadvantage, since it’s harder to garner larger clients if you’re managing such miniscule portions of the pot doled out by private and public institutions. Typically, these allocations start at $25 million, while majority-owned firms usually get pieces starting at $100 million.
One of the major challenges that minority firms face in getting business from public and private institutions is gaining recommendations from white investment advisory firms. “Large majority-owned consultants are the gatekeepers,” says Laurence Gray, president of Gray & Co., a black-owned investment consulting firm. “They don’t acknowledge the principals’ experience at a Scudder, Invesco or T. Rowe Price, where they racked up solid returns. In many cases, the process, philosophy, performance and people are the same. Just the shingle has changed.”
Oftentimes, in many cases, black asset managers must rely on minority investment consultants like Gray to make their case, or go directly to the trustees or board of pensions and endowments. And Gray believes this trend will continue since most minority firms are
“resistant to the idea” of forming alliances with majority firms. “They have the credentials,” says Gray. “They want to maintain their independence.”
So, some minority-owned firms, such as Paradigm Asset Management in New York City (No. 6 on the be asset managers list), make it a priority to look beyond minority set-aside programs for mainstream opportunities. They seek to beat major money management firms at their own game. The result: larger allocations. As of the end of last year, Paradigm managed $3 billion in assets for roughly 32 clients, including American Express, Enron and General Motors.
James E. Francis, CEO of Paradigm Asset Management, says that’s what happened when his firm put in a request for a proposal to manage a portion of the $18 billion in assets being released by the Ohio Bureau of Workmen’s Compensation. Previously, the agency managed its funds in-house, but then decided to farm out business to external money managers. “They decided they were going to hire minority asset management firms. The maximum allotment, though, was going to be $50 million,” Francis explains.
Since the non-set-aside portion was a great deal larger, with allocations of between $400 million to $800 million, Paradigm decided to “compete head-to-head” with big institutional money managers like Goldman Sachs Asset Management and J.P. Morgan Asset Management. Paradigm’s moxie paid off. The firm won a significant chunk of that contract.
Another coup was snaring a contract from the City of San Jose (California) Employees Retirement System to manage $100 million. Again, Paradigm was