The Lords of Value

When Lord Abbett moved from New York to Jersey City, N.J., two years ago, it had more to do with getting a great deal than getting a better view of the Manhattan skyline. The company paid less rent for three times the space of its former digs across the Hudson River and got enough in tax breaks from New Jersey to pay for much of the construction, to boot. Value has always been important to the money

When Lord Abbett moved from New York to Jersey City, N.J., two years ago, it had more to do with getting a great deal than getting a better view of the Manhattan skyline. The company paid less rent for three times the space of its former digs across the Hudson River and got enough in tax breaks from New Jersey to pay for much of the construction, to boot.

Value has always been important to the money manager. Since it was founded in 1929 by Andrew Lord and Leon Abbett, it has maintained a disciplined value management ethic. This conservative philosophy wasn't popular during the Internet bubble, but now that it's hip to be square, Lord Abbett's style is in demand.

With assets of $42 billion, the company has long been a key player in mutual fund and institutional circles. Recently, though, it's been zooming up the charts in the managed accounts space. Assets under management grew to $11.9 billion as of Oct. 31, from $11.4 billion at the end of the third quarter, when it was ranked No. 2, according to Cerulli Associates.

Lord Abbett remains a partnership, headed by Managing Director Robert Dow. The company prides itself on maintaining a decentralized yet collaborative style. When a partner retires, he must sell shares back to the firm — a system that has survived three generations of leadership.

“We're doing nothing different from what we've always done, which is why we're growing exponentially,” says Mark Pennington, partner and director of private advisory services. “Consistency is what our investors look for.” Perhaps more than anything, Lord Abbett's success in managed accounts is due to what Pennington calls a “deep and narrow” focus on just a handful of partners to allow for “strategic relationships” with these clients.

Rather than sell its wares to a dozen or more customers, Lord Abbett has eight different portfolios with just six sponsor firms. “We want to make a difference with a few organizations rather than spreading ourselves too thin and not making much of a difference to a lot of customers,” says Pennington. Some 50 regional managers in the field handle smaller clients. Overall, the emphasis is on helping financial advisors at its sponsor partners make the transition from a transaction-based model to a fee-based, managed account approach.

“They've done a great job in working with my marketing group and financial consultants in the field,” says Michael Havey, vice president of investment management at A.G. Edwards. “They tell a great story about Lord Abbett, but they're just not doing commercials for themselves because they seek to promote managed accounts, too.”

As part of its relationship-centered approach, Lord Abbett has a team of portfolio specialists who can hold conference calls with brokers or clients of its partner firms to discuss Lord Abbett's operations or even individual securities. It also created a Web site for its partner financial advisors aimed at helping them bolster customer service.

For example, one link taps into an in-house newsletter written by Lord Abbett analysts covering various investment-related topics such as bond strategies, economic forecasts and other developments that affect U.S. equities. Another link provides industry and company-specific research, while a third link offers a prospecting tool to drum up new business through a database of high net worth individuals, trusts, public company directors and other potential client sources. (See November Registered Rep. for story on LAintelligence.com.) “We've given our best strategic partners the keys to our safe,” says Pennington.

Of course, great customer service on a lousy product is a hollow achievement. On that score, Lord Abbett has delivered solid, if unspectacular, results as its various composite portfolios have oscillated over and under their benchmarks through recent years. Its large cap value composite, for instance, beat its benchmarks five times in the past 10 years.

Russell Smith, the national director of sales and marketing with the managed solutions group at Merrill Lynch, says Lord Abbett's returns place it in the median among the value money managers used by his firm. That, combined with Lord Abbett's emphasis on training financial advisors, makes it a valued performer in its stable of money managers, he says. In fact, Smith says, Merrill might do more business with Lord Abbett if the firm rolled out new portfolios. “One of their shortcomings,” he says, “is that they need to round out their product offerings.”

When it comes to its product repertoire, Lord Abbett says that it may be relatively narrow, but it also avoids fads. And that conservative streak has kept the company in business in good times and bad. The Affiliated Fund, which got Lord and Abbett into money management when they purchased it in 1934, remains the company's flagship product. Affiliated is a large-cap value fund and Lord Abbett maintained a value- and bond-oriented bent until the mid-1990s, when it added various growth and small- and mid-cap funds.

Lord Abbett: Portfolio Facts
Large Cap Value Affiliated-A as of 10/31
3 Years 5 Years
Annualized Return -3.82% 3.44%
S&P 500 Value -9.0 0.04
Lipper Large Cap Value -7.02 -0.60
Beta 0.88 0.87
R-Squared 0.88 0.91
Sharpe Ratio -0.45 -0.06
Source: Lord Abbett

Timing hasn't always been great — the Large Cap Growth Fund, which opened in early 2000 just before that sector hit the skids, has gotten clobbered. Overall, however, the firm's expanded product line has performed well and has made Lord Abbett the eighth-largest mutual fund company (fifth among load-fund companies), according to Financial Research Corp.

As for the managed accounts, Pennington says they have a couple new products in the hopper. One thing seems certain: They won't be flashy. “We're not a momentum growth shop, and we never will be,” he says. “Our philosophy is to buy quality companies at a discount price.” Same goes for its approach to real estate.

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