Cover | Published in August 2013

2013 Best Managers You’ve Never Heard Of

This year’s best managers believe clients are best served by investment teams heavy on experience but small in number

By John Keefe | August 2013
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Wesley Allsbrook

Faced with an abundance of investment service providers—and having few insights into what results will be realized three or five years hence—pension sponsors often make the safe choice: a big firm with substantial history behind it.

But there is a core of consultants and advisers that see a place for investment managers yet to be famous. “We believe there is value to be found in smaller, more nimble managers, who have the drive and research focus that can fade with age and size at larger firms,” notes Mary Choksi, senior managing director and co-founder of Arlington, Virginia-based Strategic Investment Group, a provider of investment outsourcing services to pension plans, endowments and foundations, and other large investors.

New firms are being created all the time. eVestment, of Marietta, Georgia, which maintains a comprehensive database on investment managers, reports that between 2007 and 2012, 148 new firms that manage strategies in U.S., international and global equities joined its ranks. And that figure could well be understated, as some managers prefer to wait until they have established a three-year performance track record to list their results.

Northern Trust – Chicago has placed about $4 billion of the $40 billion under management in its manager-of-managers program with such emerging managers. “We look for those where more than 50% of the equity is owned by employees, so the right incentives are in place for them to do well,” says Chris Vella, chief investment officer (CIO) for Multi-Manager Solutions at Northern Trust in Stamford, Connecticut. “They are hungry to do what’s right for the client, and some really shine in difficult markets. We think there’s a lot of alpha embedded in these firms.”

But a fresh face and an entrepreneurial structure only go so far. In addition to demonstrating an investment track record of institutional quality, managers have to show an ability to handle the business of investment management: regulatory compliance, managing the people and gathering assets. “There are hundreds if not thousands of small managers out there, but the ones that have a chance of being successful need to have the right mix,” Vella says.

For 2013, PLANSPONSOR has chosen two “Best Managers You Never Heard Of.” One is Huber Capital Management LLC, a California firm that sticks to the U.S. value universe; the other is Trinity Street Asset Management, a London-based manager that avoids a set style and will invest anywhere. Both were founded by seasoned investors who fared well in large firms but believe clients can be better served by investment teams heavy on experience yet small in number. But before we look ahead, let’s look back to see how last year’s best managers are faring.