Century Capital Management, which manages one of the industry's oldest mutual funds, is ready to use three new strategies to grow its small niche firm in the 21st Century.
The Boston-based firm, whose flagship mutual fund dates back 74 years, and whose second and only other mutual fund was launched 71 years later, just 2-1/2 years ago, is seeking to expand beyond its niche as an old world manager of financial service stocks. The three strategies the firm will use include focusing on managed accounts, sub-advising funds and partnering with an outside distributor to sell a hybrid interval fund.
Century Capital is stepping up its managed account business through a new partnership with West Hills Institutional of Chicago, the subsidiary of West Hills Asset Management. West Hills provides and monitors separate account managers to registered investment advisers and financial planners for use with their clients. Century Capital will make its separate account services available to clients with a $250,000 minimum investment.
Small Cap Success
Century Capital also wants to sub-advise more funds, particularly small-cap funds, an area that the firm first got into in late 1999. While Century currently sub-advises only one other fund, the $7 million Orbitex Financial Services Fund, one of the Orbitex Groups of Funds of New York, it has no interest in sub-advising other financial service funds.
Acting upon the suggestion of an institutional client, Century Capital launched its institutional Small Cap Select Fund in December of 1999. But the firm quickly saw that there was a market for small cap among retail investors and added a no-load investor share class two months later.
With both share classes returning well over 12% year-to-date through May 27, 2002, Century's small-cap fund is in the top percentile of its fund peer group, according to Morningstar of Chicago. In its first full year of operation in 2000, it also ranked in the top percentile, rewarding investors with a 54.8% return. The following year, in 2001, even though it returned only 5.8%, it did better than 97% of its peers.
Nonetheless, with only $26 million under management, the fund has not garnered many assets. Still, that has not deterred Patrick J. Carolan, managing director of Century Capital, from seeing opportunities for the firm to sub-advise other small cap funds. The reason the Century Small Cap Select Fund has had a hard time garnering attention is because it is just shy of a three-year milestone track record, Carolan said. It also hasn't been around long enough to earn a star ranking from Morningstar, which can often put an undiscovered fund with stellar performance on the map, he added.
But the small-cap fund has developed a small following among fee-based investment advisers who have custody accounts with Fidelity Investments of Boston and Charles Schwab & Co. of San Francisco. Carolan is currently seeking a Northeast regional wholesaler to work with planners, and expects to hire two additional wholesalers within the next nine months.
In a third initiative, Century Capital is actively seeking a distribution partner to sell a hybrid interval fund that will invest 60% of its assets in public companies and 40% in private companies. This venture is part of the firm's private equity division that caters to corporate clients and that was started in 1987. "We need someone with larger distribution." Carolan said.
Century Capital currently manages a total of $750 million, of which about $400 million is in mutual funds. Century Capital also manages Hemispheres, an offshore fund group that invests the general accounts of insurance companies.
Century Shares Trust, the firm's $353 million flagship mutual fund, dates to its March 1928 inception. The fund's extensive heritage includes beginning life as an internally managed trust created by Brown Brothers Harriman of New York. The fund was created to invest in stocks of two of the three then-dominant sectors, banks and insurance companies, with the managers shying away from railroad stocks.
The fund's focus hasn't changed much since then. It still concentrates a significant portion of its portfolio in insurance and financial service companies, although it won a mandate from shareholders last year to broaden out from its financial service sector roots.
In 1983 it changed to no-load status and was converted to a publicly offered mutual fund in 1989.
Long Heritage, High Profile
In addition to having several of its early trustees testify before Congress in regard to the passage of the Investment Company Act of 1940, the fund is also known for its high-profile affiliations. Prescott Bush, former Brown Brothers partner and grandfather of current President George W. Bush, is among the firm's original boardroom alumni.
Century Capital's management company was spun off as a standalone entity in 1989. At Century Capital's helm is Allan Fulkerson, who started as an analyst with the predecessor company 28 years ago. He moved up through the ranks to become a portfolio manager and eventually chairman. A few years ago, seeking to step back a bit from his everyday duties, Fulkerson hired Alexander ("Lanny") Thorndike as managing director and portfolio manager.
While Century Capital is trading off its past successes, it also knows full well what its limitations are. Its portfolios are deliberately underweighted in tech stocks. "That's an area we don't understand as well as others," Carolan said.
Moreover, the firm is not sure it wants to wade into the hedge fund waters. "In a hedge fund, you have to know how to short stocks, and we haven't done that," Carolan said.