Several fixed-income clients of Standish Ayer & Wood, citing poor performance due to an overweight to corporate bonds in its active core and core-plus bond strategies, are ending their relationships with the manager, according to BW sister publication Money Management Letter. The City of Austin Employees Retirement System and the Baltimore County Employees Retirement System, both recently indicated that they will be ending the relationship with the manager on the core-plus and active core bond mandates, worth roughly $220 million and $225 million, respectively. And most recently, the Anchorage (Ark.) Police and Fire Retirement Board terminated the manager from its $40 million fixed-income account and consolidated the funds with a $90 million account managed by incumbent manager Columbia Management. Additionally, the manager was let go last March by the Maine State Retirement System's bond account, a mandate valued at some $200 million. Calls placed to Thomas Sorbo, sales director at Standish Ayer & Wood in Boston, were not returned by press time.
JimYanni of Yanni-Bilkey Investment Consulting attributes the manager's woes to taking an underweight position in Treasury bonds and overweighting low-grade corporate bonds on the investment-grade side in its bond portfolios. Over the past two years, Standish invested in lower-grade corporates as interest rates continued to rise, thus forcing bond yields up in the secondary bond market, said Yanni. "Treasuries also were blowing the market away. They are where the performance is," he says.
Yanni adds that the poor bets led to the exodus of plan sponsors. "When you make one wrong bet, the plan hops," he says. Another industry consultant agrees that the manager's problems stemmed from poor security selection. "They placed heavy bets in lower quality sectors, and their security picks did not turn out well," says the consultant. A Standish spokeswoman declines comment on the client exodus, but says the firm is on the verge of a rebound in its corporate bond portfolio, because the environment for corporate bonds is improving.
Last year, the manager's core-plus bond product returned 6.57% in the third quarter versus 7.12% for the Lehman Brothers Universal Bond Index. Additionally, the third quarter figures for Standish's core fixed-income portfolio was 3% compared to a 4.2% gain for the Lehman Aggregate Bond Index.
