Money Managers Posted Gain in Down Year
Working with Newport Beach-based Pacific Investment Management Co.,a leading manager of fixed-income investments,seems to have helped Raymond Pentz.
By combining bond investment skills he acquired at PIMCO and stock picking he honed at Newport Beach’s Palley Needelman Asset Management Inc., Pentz and his team at Street Asset Management LLC are among the few money managers in Orange County who had a strong year in 2000.
Less than a year after opening the money management boutique, Street Asset Management, in Corona del Mar has grown to nearly $100 million in assets under management and posted a 16.1% return last year,a far cry from the 6% fall in the Dow Jones Industrial Average or the 39% decline in the Nasdaq.
“You can’t sell bad numbers,” said Pentz, chief executive of Street Asset Management.
One of the reasons for the company growing to $100 million in assets under management is because of above-market returns it gave to its investors during 2000, Pentz said.
Pentz, along with Donald Sheetz, Kurt Stable and Chriss Street, manage money for 10 clients, including pension funds, corporations and wealthy individuals. Their biggest client is Fruehauf Trailer Corp. Retirement Plan, for which the firm manages around $29 million.
Sheetz, who is the president of Street Asset Management, formerly worked as a consultant to corporations buying and selling of aircraft. Stable, the firm’s chief investment officer, was the lead research analyst for Pasadena-based Lawrence Kelly & Associates Inc. Street, chairman and the firm’s namesake founder, has 20 years of experience in investment banking, asset restructuring and financial advising. The company was formed in January 2000.
Street Asset Management takes a balanced approach to investing. Its portfolio is a mix of both stocks and bonds. By balancing the portfolio, the firm reduces the downside risk associated with gyrations on Wall Street,like those seen last year.
“Depending upon the risk profile of the client, we spread our investments,” Stable said.
On an average, Street Asset Management invested 40% of its funds in bonds and the remaining in stocks.
Unlike mutual funds, money managers such as Street Asset tailor investments to suit a client’s risk profile. For aggressive investors, money managers may set up an all-stock portfolio, while more cautious clients may have a portfolio heavy in corporate and municipal bonds.
So while Street Asset saw an average 16.1% return last year, some clients received higher returns while other clients may have gotten a lower percentage.
To be sure, Street Asset benefited from a changing climate on Wall Street last year.
“Our timing was right,” said Pentz, who was senior vice president at PIMCO and later managing director at Palley Needelam. “We were in the right sectors such as financials, healthcare and energy while we were underweighted in technology. The big kicker was, of course, healthcare.”
The S & P; 500 had a 26% weightage in technology, Pentz said, while Street Asset had a tech weightage of only 17%.
The firm was weighted 11% in the energy sector last year, vs. a weighting of 6% for the sector in the S & P; 500. And in healthcare, Street Asset invested 19% of its funds under management, while the sector has a weighting of 12% in the S & P; 500.
While the firm’s 16.1% average return is impressive compared to the performance of the major indexes last year, Street Asset’s return on its equity investments yielded an annualized 43% gain for the one-year period.
Investments in fixed-income securities, an area where Pentz brings expertise, yielded 13.6% on an annualized basis, which is far higher than the 6.1% returns on 90-day Treasury bills and slightly more than the 12.5% return on Lehman Brothers Government and Corporate Bonds Index for the period.
At the end of 2000, the money management firm had invested close to 22% of funds in bonds and other fixed income securities.
“Again, the timing was right in bonds,” Pentz said. “We started buying bonds earlier in the year, which was the best time to buy bonds.”
Street Asset plans to continue its balanced investing approach, according to Pentz.
“We are not looking for a recession, but we are looking for a hard landing,” he said. “I don’t know how stocks will do well.”
Still, Pentz said there’s a trade-off to balanced investing.
“Right timing helped us get good returns,” Pentz said. “That does not mean we are going to do it every year. But we made some right choices this year.”
Street Asset now is targeting to double the amount of money it currently manages.
“By the end of this year, we are looking at managing close to $200 million,” said Sheetz, who handles client relationships for the firm. n
