Total Return

Consistent performance is crucial for money management firms seeking to attract and retain clients

certain small-cap shares. Eley manages the Edgar Lomax Value fund, a member of the be Black Mutual Fund Index (see “Fantastic Voyage,” Moneywise, April 2000).

Second, 1999 was the first year Edgar Lomax achieved $1 billion in assets under management, which Eley concedes is “a pretty large step” for a smaller money management shop. The firm brought aboard three staffers, increasing the number of employees to 12. Edgar Lomax also added two important new clients, winning the business of the State Retirement and Pension System of Maryland and the Prince Georges County (Maryland) Police and Fire Service Pension Plan.

Later this year, the Edgar Lomax Value fund will achieve another milestone: it will become eligible for a rating by Morningstar, the Chicago-based mutual fund research firm, when it celebrates its third anniversary this December 12. Once that happens, he’ll be able to push for additional channels of distribution for the fund, such as mutual fund supermarkets run by firms like Charles Schwab and Fidelity Investments.

As anyone who follows the fixed-income market will tell you, 1999 was a bad year for bonds, with the 30-year U.S. Treasury bond suffering a negative return of 1.4%. So the trick for fixed-income shops was to outperform their stated benchmarks and, at the very least, hold on to their assets. In addition, some African American-owned money management firms established themselves as experts in a particular niche, such as global fixed-income.

“As you know, the bond market had negative returns last year, so that’s primarily the reason we had little growth” in assets under management, says Gerald B. Smith, chairman and CEO of Smith Graham & Co. Investment Advisors (No. 7 on the be asset managers list). Houston-based Smith Graham managed $2.2 billion in assets by the end of 1999, and while it did garner new clients, growth in money under management was a flat 4.5%, says Smith. The firm has 42 institutional clients, with about 60% of them coming from the public sector. Among its clients: State of Florida Treasury, Philadelphia Employees Retirement Plan, Honda and Enron.

To combat this ennui in the bond market, Smith Graham emphasized to clients its expertise in the global fixed-income market, and beefed up its research and investment staff to better anticipate long-term trends. “We strengthened our team over the course of last year,” explains Ronald Johnson, chief investment officer with Smith Graham, a recent addition to the firm. “Our clients saw that we were serious about dealing with changes in the marketplace, and we affirmed our belief that performance begins by having a team of professionals capable of competing in the markets of tomorrow.”

Some steps Smith Graham took to outperform its benchmarks included purchasing bonds in hot sectors. For example, the firm emphasized buying foreign bonds and triple-B-rated bonds, those most likely to receive ratings upgrades. Smith Graham shunned such issues as single-A-rated bonds, those more likely to be downgraded.

These actions helped the firm’s core portfolios outperform their benchmarks. For example, its Extended Cash product-its short bond

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