Field of Dreams

Eugene Profit’s firm is at a crossroads. The CEO of Profit Investment Management (No. 14 on the be asset managers list with $1.36 billion in assets under management) wants to diversify his client base to gain more corporate clients while boosting the firm’s coffers to $2 billion. Accomplishing either goal will be a challenge given the condition of the financial markets.

Currently some 65% of the assets Profit Investment manages are accounts from public institutions, but Profit thinks it’s time to target more corporate clients and endowments. As with many companies its size, “it sometimes seems as if we’re too big to be a small firm and too small to be big,” says Profit. That’s because at just under $1.5 billion in assets, it’s hard to approach pension fund trustees and investment officials at the controls of the biggest public and corporate funds. As a result, Profit still relies on large investment advisory companies, or funds of funds, to funnel new money his way–which they do at a cost.

The firm invests funds for 53 accounts, the vast majority of which are pension funds for government employee groups and corporations, including Abbott Laboratories, Calvert Mutual Funds, New York City Retirement Systems, Illinois Board of Investments, and the San Francisco City and County Employee Retirement System. Profit offers his clients three investment products, portfolios focused separately on large-, medium-, and small-cap stocks. Additionally, Profit oversees a mutual fund, the Profit Value fund (PVALX), with some $7 million in assets.

These days, entrepreneurs do whatever they can to drum up business, and Profit is no exception. He brought in a new marketing team this spring and, like many money managers, spends a good portion of his time traveling. He meets with investors to do the requisite handholding as he explains results, talks shop, and tries to allay concerns they might have about the current market. Meanwhile, Profit runs a lean operation with 14 employees in two offices: a headquarters in Silver Spring, Maryland, and another in Chicago. In the midst of a recession you’re either lean or you’re out of business, and Profit knows this well.

Since beginning his career in finance as a broker with Legg Mason in 1994, Profit has developed a company that ranks among the largest black-owned businesses in the U.S. In the world of asset management, it’s performance that counts, and Profit scores there as well. Despite the losses in 2008’s turbulent market, Profit’s mutual fund maintains a 10-year total return of 2.94% versus his peer group’s loss of 1.84%.

PATIENCE IN THE POCKET
Also serving as portfolio manager for the company, Profit, a former professional football player, applies some of the skills he developed on the gridiron–hard work, focus, analysis, and determination–to business. As a cornerback with the NFL’s Washington Redskins and New England Patriots, he exercised patience. At the start of each play, Profit would hold back for a split second so he could determine just what the opposing quarterback, running backs, and receivers aimed to do. Once that became clear, it was time for step two. The Yale University graduate with a bachelor’s in economics would use his keen reflexes to swoop into position for the focal point of the play. Only then did he get to uncoil and tackle an opposing player, block a pass, or make a game-changing interception.

That same patience and analysis are being applied to the world of finance as the 44-year-old searches through data for signs that the downturn is ending. “U.S. companies are going to lead the global economy out of the recession, especially as they benefit from a weak dollar to boost foreign sales,” Profit said last November. “We’ll be looking to see if foreign sales are up and if companies are keeping their margins intact even as commodity prices come down. That may be a signal that we’ve turned the corner.”

When times are hard, competitive pressure in the financial services space grows even more intense as large and small players vie for investment capital, the lifeblood of these businesses. “We’re in a business where you have to continually prove yourself and where everyone is conscious of your latest results,” says Profit. “I think we’ve proven our abilities long term and hopefully that comes across to long-term investors and new accounts.”

GRINDING IT OUT
Profit didn’t shy away from the turmoil of 2008. For a time, he even navigated the whirlpool that was financial industry stocks. While he exited the sector almost entirely starting in early 2007, at year-end he saw an opportunity to drop anchor on two of the banking sector’s stalwarts, Wells Fargo and J.P. Morgan. The move was just in time to benefit from a financial stock rally last spring. “We run a diversified portfolio, and our analysis indicated that the sector had the potential to be positive at some point in 2008,” he recalls. “We wanted to be careful, and the decision was made that we would get into large, diversified banks that had minimal exposure to mortgage-backed securities. Those two banks fit the description.”

While Profit thinks there’s still rough trekking ahead for the market in 2009, he’s keeping an eye out for opportunities in two favorite sectors, technology and healthcare. He believes both will be primed for appreciation once the economy stabilizes. “Prices have come down on the best names in both groups, but we haven’t seen erosions in market share for companies we like.” He includes Apple on that list. “The stock has come down dramatically, but the stores are full and products like the iPhone or iPod are still popular.” Cisco Systems is another example. “The company’s products are still in demand. It’s an infrastructure play that should do well when the economy comes out of the doldrums.”

The money manager says the fundamentals behind healthcare are still in place. “Healthcare is demographics, the aging of the population. Demand’s not going anywhere–the stocks are cheap, and many pay a high dividend yield,” he says. That reasoning has guided Profit into names such as Pfizer, Johnson & Johnson, Medtronic, and Amgen.

ADJUSTING HIS GAME
Profit has run into many unexpected turns over the years, and he’s had to respond on the fly. About 10 years ago, when Profit and his initial mutual fund manager, Randell Eley, decided amicably to go their separate ways, Profit retained his role as marketer but was thrown into the role of money manager as well. His first task was to establish a new brand identity distinct from Eley’s frugal investing style. Profit struck something of a compromise, opting to anchor the portfolio in growth stocks that were moderately priced in relationship to the market.

At the same time, he focused his selling efforts on large accounts to gain volume. His aim was to take advantage of economies of scale. Profit reeled in institutional investors to secure the firm’s future. He landed his first subadvisory account with the Chicago outfit Northern Trust, a contract that set him up to invest some $10 million on behalf of the Los Angeles County Employee’s Retirement Fund in March 2000. Just three years later Profit opened accounts to manage retirement plan assets for the Illinois State Board and city of San Francisco employees.

Profit doesn’t like to take full credit for his success. One of a family of five children growing up in Los Angeles, Profit didn’t know his father. He expresses a kind of awed humility when he speaks of his mother, who

worked as a surgical assistant, and her sacrifices to make sure he completed college. Once he reached high school, other subtle but solid influences emerged. “They gave me a different perspective of my possibilities,” Profit recalls. “Certainly sports played a major part, and the football story is a nice cocktail conversation, but they helped to guide me to Yale, and that is a credential that speaks volumes. It doesn’t require me to go out and tell my story from scratch again and again.”

By all accounts, Profit still possesses the quiet demeanor of a cornerback surveying developments on the field. “He’s reserved, he’s low-key, and he’s calm,” says longtime friend Loida Nicolas Lewis, CEO of TLC Beatrice L.L.C. “How many former players at a cocktail party can let even two minutes go by without puffing out their chest and letting everyone know they played?” asks Larry Jennings, another longtime friend and a member of Profit’s board of advisers. “I’m willing to bet there are people who’ve done business with Eugene for years and they still don’t know he was in the league.”

Profit Finds Value

In addition to assets he oversees for 53 large-scale private clients, Eugene Profit manages a mutual fund called Profit Value (PVALX). Here’s the fund at a glance:

Founded: Oct. 31, 1997
10-Year Total Return: 2.94%
Peer Group’s 10-Year Total Return: -1.84%
Category/Strategy: Invests in large-cap growth companies
Net Asset Value (NAV): $12.32
Morningstar rating: Four stars (out of five)
Minimum investment: $2,500
Top three sectors (% of stocks): 19% information hardware, 21% healthcare, 16% industrial materials

Top five holdings in the fund:

1. Wal-Mart Stores Inc. (WMT)
2. Gilead Sciences Inc. (GILD)
3. Amgen Inc. (AMGN)
4. Qualcomm Inc. (QCOM)
5. Celgene Corp. (CELG)

SOURCE: Morningstar

This story originally appeared in the February 2009 issue of Black Enterprise magazine.