IN DEPTH: BANKING AND INVESTMENTS
From the June 4, 2004 print edition
BDHS expands office as assets top $100 million
Susan Kerth
A $10 million piece of new business from the Illinois State Board of Investments has propelled St. Louis-based Buford, Dickson, Harper & Sparrow Inc. into the big leagues of institutional portfolio managers, with assets under management now exceeding the $100 million benchmark.
Over the past two years, minority-owned Buford Dickson has doubled its assets under management, said Bill Young, president.
The Illinois State Board of Investments is a collective pool of retirement systems for Illinois state employees. It is charged with managing, investing and reinvesting the assets of pension funds under its authority. Those funds, whose assets total $10.5 billion, include the General Assembly Retirement System, the Policemen's Pension Fund, the Firemen's Pension Fund and the Policemen's Annuity and Benefit Fund, among others.
Typically, individual allocations of large retirement systems like the Illinois State Board of Investments fall in the range of $300 million to $500 million. But last summer, the board adopted a plan to allocate 5 percent of its portfolio to "emerging managers," which are defined as certified minority- or female-owned firms with fewer than $400 million in assets under management, said Bill Atwood, executive director.
In addition to meeting those criteria, emerging manager firms must also pass "fiduciary muster," Atwood said, in terms of their investment performance and infrastructure.
"Buford Dickson is exactly the kind of firm the board is looking for," Atwood said. "Frankly, a smaller (investment) platform like Buford Dickson's has advantages over a mega-firm because it allows us to get in and out of positions more promptly without disrupting the whole market."
In April, Buford Dickson moved from Clayton to 2,000 square feet of office space in the Metropolitan Square building downtown. The firm has six employees. "This move gives us enough space to add another five employees within the next two years," Young said.
In addition to Young, who owns a 10 percent share of Buford Dickson, the four original partners each maintain an ownership position in the firm. They include BDHS Chairman and Chief Executive Officer Reginald Dickson, 61 percent; Tab Buford, 15 percent; David Harper, 10 percent; and Gerald Sparrow, 4 percent. Young said Buford and Harper are not active in the firm's day-to-day operations; Sparrow is a member of its investment committee.
Buford Dickson's performance has been attracting the attention of industry insiders, Young said. At year end 2003, BDHS was ranked among the top-performing U.S. money managers by two key evaluation services. "Money Manager Review ranked us 18th out of 3,000 large-cap equity growth money managers," Young said. Effron Enterprises, another evaluation service, named BDHS a "Top Gun" manager for 2003 -- a designation it awards to the "best of the best" among large-cap firms.
"Since the tech bubble burst in 2000, there have been three straight negative years in the market," said Young, who marked his second anniversary as BDHS president in March. "But BDHS has grown at a compound rate of over 25 percent per year during that time."
Young, 55, joined BDHS in 2000 as vice president and director of marketing after a 25-year career with A.G. Edwards. He served in a number of positions at A.G. Edwards, including broker and marketing director of the firm's private money management division.
"We are pretty optimistic that we'll be between $150 million and $200 million by the end of the year," Young said. "We have enough prospects that we believe we can reach that mark."
Current clients also are helping fuel the firm's growth. BDHS received additional contributions from 80 percent of its clients last year.
Founded in 1995, BDHS has two dozen account relationships, including its first client -- the St. Louis Public Schools Retirement System. The system's relationship with BDHS started with a $500,000 investment and has grown to about $16 million today, about 1.5 percent of the system's total portfolio.
Gail Lakin, executive director of the retirement system, uses the Russell 1000 Growth Index as a yardstick to compare the performance of "managers who fish in the growth stock pond." From March 1996 through the end of last year, the Russell Index had a 6.5 percent annualized rate of return, Lakin said, compared with 13.1 percent for BDHS.
The retirement system currently uses two portfolio managers in the large-cap growth asset class in addition to BDHS: Monetary Management and Weatherfield, both based in St. Louis. Over a five-year basis, BDHS outperformed both firms, Lakin said.
BDHS' minimum account size has grown to $5 million today. The firm recently added the SSM Health Care system and the Missouri Foundation for Health to its client list. Other clients include Washington University, AmerenUE and the city of St. Louis Employees Retirement System.
BDHS' investment decisions are made by a committee that, in addition to Young, includes Dickson, Sparrow and Alex Ramos, chief research analyst.
Young said BDHS is actively pursuing other clients outside St. Louis. The firm currently works with Amsouth Bank in Birmingham, Ala., managing part of its retirement system's investments.
© 2004 American City Business Journals Inc.