Mutual Fund Under Fire : Pickens, Grace Family Members Try to Wrestle Control of Clemente From Husband and Wife Team
Lilia C. Clemente, relaxed and cheerful, doesn’t look like a woman under siege. Having jetted in from a three-week business trip to New Zealand, Australia and Honolulu, she settled into the Beverly Hills Hotel for a couple of days of West Coast meetings before taking a red-eye flight home to Manhattan.
But the diminutive money manager is under attack by the scions of the some the biggest names of Wall Street. Thomas B. Pickens III, youngest son of corporate raider T. Boone Pickens Jr., and Oliver R. Grace Jr. and his brother John S. Grace, distant cousins of W. R. Grace & Co. Chairman J. Peter Grace, are trying to take over her 1-year-old, $52-million Clemente Global Growth Fund. She is suing to stop them.
“I think those guys did me a favor,” Clemente, 47, said of the raid on her fund. “Everybody is asking who are the Clementes? Everybody is curious.”
Innovative Manager
The Clemente Global Growth Fund is a closed-end mutual fund that specializes in equity securities in small and medium-sized companies in emerging markets all over the world. The fund was listed on the New York Stock Exchange on June 23, 1987, “a day before my wedding anniversary,” noted Clemente, dressed in black because she is in mourning the recent death of her mother, Belen Fabros Calderon, the first woman ever to hold a seat on the Manila Stock Exchange.
“Can you imagine selling out to kids like that?” she asks as her face breaks into her trademark Cheshire cat grin that has graced the pages of Money magazine, Forbes and Barron’s.
Filings with the Securities and Exchange Commission indicate that the Graces and Pickens--all in their 30s--have met with Clemente and her husband twice. They offered to buy them out, but the Clementes refused, noting that their management contract is not transferable, Clemente said.
Clemente, who arrived in the 1960s in the United States from the Philippines with only two suitcases, was one of the early money managers to move aggressively into global stocks and markets. She helped to internationalize the $3-billion portfolio of the Ford Foundation in the 1970s. As portfolio manager and vice president of Paine Webber Atlas Fund, she helped build the open-end global mutual fund to a $216-million asset base from $66 million.
Today, she operates Clemente Capital Inc. with her husband Leopoldo M. Clemente Jr. Clemente Capital manages $400 million in assets with 12 accounts. The Clemente clients include Freedom Global Fund, Freedom Global Income Plus Fund, Sentinel Global Fund and Clemente Global Growth Fund. In 1987, Clemente was ranked among the hottest global money managers.
Her husband, with whom she competed when he managed portfolios for Eberstadt Asset Management (now part of Alliance Capital Group) and Van Eck Management Inc., joined Clemente last year to run day-to-day operations.
Pickens and the Graces have been earning hefty profits recently by buying into closed-end mutual funds and forcing them to convert to open-end status. In 1987, they acquired a stake in the $700-million Japan Fund and earned a $10-million profit when the fund converted to an open-end status. The Graces were part of another group that forced the liquidation of the $200-million Crescent Japan Investment Trust PLC, a British closed-end fund.
Since July, Pickens and the Graces have acquired 18.4% of the Clemente fund through various limited partnerships. They have said the purchases were to “to earn a profit,” and they may seek a controlling interest in the fund or representation on its board, depending on the discount-to-net-asset value in the market price of Clemente.
“The issue is competence and performance,” Clemente points out. “Who is better for the fund? I don’t mind being fired or taken over if the people can do a better job in emerging markets.”
What made Clemente so vulnerable was the steep 25% discount-to-net-asset value at which her fund was selling earlier this year on the Big Board. Closed-end mutual funds like Clemente’s issue a fixed number of shares that trade at a premium or discount to their net asset value. Widespread discounts have made closed-end funds new targets for takeovers.
The discount on Clemente has since narrowed to 12.1% for two reasons: The Clemente fund has been buying back its shares as a part of its takeover defense while Pickens and the Graces have been too.
The Clementes sued the Pickens-Grace group for alleged violation of federal disclosure laws but were unsuccessful in getting the court to temporarily stop more purchases by the investor group. Meanwhile, the Clemente fund board has set a meeting in spring 1992 for shareholders to vote on whether to convert the fund to an open-end status.
Other Clients
John S. Grace, president of Sterling Grace Capital Management, reached in New York, declined to comment beyond what has been filed with the SEC.
Meanwhile, the Clementes oversee their staff of 20 in 13 different countries from their Manhattan office. “I decide the strategy; I’m the one who calls the shots. Leo is much more prim and proper.”
Clemente admits, however, that the takeover attempt has been distracting, but “the show does not end. We have other funds. We have other clients.”
