Berwyn, Pa., may be a couple of hours drive south of Wall Street, but Turner Investment Partners is hoping to dive right into the nation's financial hub with the preliminary filing of documents for its intended initial public offering on the New York Stock Exchange. Turner filed for the IPO with the Securities and Exchange Commission on Sept. 18.
While Turner indicated it hopes to raise $150 million, other details of its IPO have yet to be determined. For instance, the filing does not yet include previously undisclosed details on top executives' salaries. Nonetheless, Goldman Sachs has been chosen as the sole underwriter for the niche investment firm, which has more than $25.2 billion under management in both institutional and retail mutual funds as well as separate accounts. Moreover, the firm will use the proceeds of the offering to acquire outstanding shares of Turner Investment Partners and morph the firm into the new Turner Investments.
While Turner is a well-regarded boutique investment manager, critics worry that the firm is a one-trick pony with a solid growth investment strategy that may not play well in future stock market cycles, such as when value stocks return to favor. Moreover, while Class A shares will be publicly offered to investors, Turner's head honcho will single-handedly own Class B shares and will essentially control all future decisions about the firm.
In addition, while many small to mid-size or niche investment managers have fared well in the public market over the longer term, this year has been particularly hard on many such firms as investors paused to gauge the impact of the broader credit market meltdown on public investment managers.
According to the Lipper Management Company Index, which tracks the performance of the stock of 14 publicly held asset management firms or holding companies, year-to-date through Sept. 25, the index's cumulative return is in the red, down 9.53%. That could mean that Turner is seeking to tap the capital markets while investors are still a bit skittish. This index includes larger companies such as Alliance Bernstein, Federated Investors, Franklin Resources and T. Rowe Price, as well as smaller boutique firms like Calamos Asset Management, Cohen & Steers and GAMCO Investors.
The index's picture is much brighter over the longer run, with it posting trailing three-year annual total returns of 30.25% and five-year returns of 26.16%, according to Lipper.
Turner was co-founded in 1990 by Robert E. Turner, who serves as the firm's chairman, chief executive officer and chief investment officer, and his brother Mark Turner, who serves as president and senior portfolio manager. The third member of the founding trio is Christopher McHugh, who serves as executive vice president and senior portfolio manager. The firm has been known to be fiercely independent, which the firm believes benefits its clients. The firm's website boasts: "We think remaining independent will help us keep our interests in sync with the interests of clients."
Early on, the founders focused on honing their growth investment discipline, which has been the basis for the firm's growth. At the end of the first year in business, the firm had $112 million in assets under management. Turner manages the Turner Funds, a group of 10 funds, and entered the separate account business in 2000. Two new mutual funds joined the Turner family this past February: the Turner International Core Growth and Turner MidCap Equity. The Turner Strategic Growth Fund was sold off to Phoenix Investment Partners in June 2006.
Overall, growth has been steady within the firm, as assets have grown at a compounded annual growth rate of more than 27%. Turner finished 2002 with $8.5 billion under management. At year-end 2006, assets had soared to $22.8 billion, with the advisor raking in $108 million in overall management fees for the year. Through June 30, 2007, Turner has earned $58.7 million in management fees, putting the firm on track to handily surpass last year's levels.
"Turner is a pure growth shop focused on firms with rapidly improving fundamentals," said Michael Breen, senior analyst with Morningstar of Chicago. That strategy often means high turnover within the mutual funds, he said. But because Turner is willing to pay up for rapid growth, managers are usually rewarded with higher returns. The firm sports a decent institutional operation, stays true to style and when its growth strategy is in favor, the firm furiously outperforms the competition, Breen added.
Moreover, Turner has consistently earned high marks in Morningstar's stewardship grades, Breen said. Turner isn't shy about closing funds when the managers find it tough sledding to generate returns, and they can boast of a straightforward communication style with investors, he noted.
True to Character
"Going public can be a good opportunity for investors to participate, but going public is not for everyone," said Norton Reamer, president and CEO of Asset Management Finance of New York, which has inked seven revenue-sharing investment arrangements with small or niche investment managers. AMF infuses smaller firms with necessary capital to grow or stay independent in return for a revenue-sharing arrangement and totally passive voice in the firm lasting from seven to 20 years, Reamer said. Last month, the firm signed a deal with growth equity firm Rigel Capital of Seattle. AMF assumes the risk for managers growing revenues but lets each firm retain its independence and autonomy.
"Lots of smaller firms don't want to go public. They want to retain their character or style or the niche they occupy," Reamer said. "Public market scrutiny can be disruptive."
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