The Allstate Corporation will move its roughly $1 billion in high-yield assets back in-house and away from Trust Company of the West, a Los Angeles based money manager. "Primarily what we're trying to do is recruit and retain [asset management] talent as well as position ourselves to attract new institutional business," says Mike Trevino, spokesman for Allstate. He says the ability to offer high-yield products has been "one of the missing ingredients," in the drive to attract such business. The Allstate Corporation manages $750 million in third-party money through the Allstate Investment Management Company, a subsidiary. Trevino also notes that in a volatile credit environment that has seen a number of "fallen angels"--bonds that drop from investment-grade to high-yield--it helps to have high-yield expertise. The firm has announced a $25 million write-off resulting from losses related to Enron.
The assets will be moved once the firm has hired a high-yield portfolio manager, who will report to Mark Cloghessy, managing director, fixed-income. Trevino would not specify even an approximate timeframe for when a manager would be hired. Cloghessy referred calls to Trevino.
The decision to move the assets in-house was in no way related to poor performance or cost-cutting, says Trevino. He declined to give performance statistics for TCW, which has managed Allstate's high-yield assets for roughly 10 years. Melissa Weiler, head of high-yield at TCW, also declined to give performance numbers, citing client confidentiality. She says, however, that TCW has performed well relative to its benchmark, and that Allstate had been hinting at the decision for some time. "We are the only outside manager they have. They've been happy with the job we've done, she says." A high-yield portfolio manager at another firm says client confidentiality is a legitimate reason to refuse to give performance statistics, and not necessarily indicative of poor performance.
The largest of TCW's high-yield bond funds for which statistics are available on Morningstar.com, the $267 million TCW Galileo High-Yield Bond I, showed three year annualized total returns of -.08%, and has returned 1.49% over the last year. By contrast, the Merrill Lynch High-Yield master II index, a widely-used benchmark, returned .537% annualized over the last three years and 4.477% over the last year according toMark Anderson, v.p. in Merrill's portfolio strategy group. According to Lipper, which tracks mutual fund performance, high-yield funds, showed annualized returns of 1.02% over the last three years, and 1.81% over the last year.