Forward Management has bold expansion goals — and it's aiming at bank trust departments to provide part of the growth, according to its president.
The San Francisco company, which has about $3.5 billion of long-term assets under management, has made several moves since the beginning of the year. They include buying a boutique investment firm and taking a stake in another small asset manager with which it plans to launch a mutual fund.
"We'd like to think we can be a $20 billion firm within a few years," said Jeffrey Cusack, president of Forward.
It is "absolutely looking for more acquisitions," he said. Part of its growth in assets, he added, should come organically through bank trust departments.
Forward's distribution currently includes between 50 and 100 bank trust units, and the total has grown 10% over the past year, he said. It is using its beefed-up fund lineup to seek more business from trust officers.
Forward gained ground in the world of small and regional banks a little more than a year ago when it acquired the Seattle fund company Accessor Capital Management. Until recently, Forward's products distributed through bank trusts were mostly style-pure, sub-advised funds best suited to small accounts, Cusack said.
"We've historically been the small-account solution," he said. "We had hoped to expand our relationships beyond that."
Trust clients with more than $1 million of assets, on the other hand, need more customized investments, he said. Forward now has more to offer, thanks in part to its acquisition, announced in June, of the San Francisco retail division of Berkeley Capital Management.
The deal brought Forward the investment portfolios and managers of the Global Dividend, International Dividend, U.S. Dividend and SmallMid Core portfolios.
In February, Forward added the Kensington Funds, from Kensington Investment Group Inc., to its lineup. That deal brought the Global Infrastructure Fund, which invests in companies that may benefit from economic stimulus packages, and the Select Income Fund.
And on Aug. 11, Forward announced that it had taken a minority ownership position in Broadmark Asset Management. Plans call for a Forward Tactical Growth mutual fund, which will be sub-advised by Broadmark. The deal came shortly after Forward and Broadmark partnered to offer separately managed accounts based on Broadmark's long-short investment strategy.
The acquisitions were backed by G. Gordon Getty, the oil-fortune heir who started Forward in 1998, and the company's directors, Cusack said.
When the market turmoil was fierce, Forward faced a choice — it could "go into the bunker and wait it out, or look at it as an opportunity to grow the firm," he said. "Gordon Getty and the board took the long-term view that we should not stick our head in the sand; we should go out and use this opportunity."
The new funds in Forward's lineup have given it more of an alternative-asset-class profile, something that could prove attractive to investors following the stock market crash last year, Cusack said.
"I think people should sort of look at us as their alpha shop," he said, referring to the idea that managers' skills can create better returns than the market.
But that identity is a double-edged sword, warned Alois Pirker, a senior analyst with the research firm Aite Group.
"It's a dangerous niche unless you deliver," he said. "Lots of alternative investors have gotten burned over the past couple of years."
Cusack said there's plenty of demand for products such as the coming Tactical Growth Fund, whose managers have the ability to invest 100% short or 100% long, mainly by using exchange-traded funds.
More advisers have begun allocating around 15% of their clients' portfolios for a flexible approach rather than the traditional buy-and-hold one, he said.
"We're seeing in the marketplace today an awful lot advisors and clients who are questioning investment strategies that have you invested 100% long at all times," Cusack said.
So far this year, Forward's funds are performing about as well as its peers'. Through August their asset-weighted return was 22.8%, versus 22.9% for similar rivals, according to Morningstar.