Capital Group Loses Client
Massachusetts’ main state pension fund said Tuesday that it fired money management giant Capital Group Cos. because of poor returns, costing the Los Angeles company an account worth nearly $1 billion.
The defection is the latest Capital has suffered from its Capital Guardian Trust unit, which at midyear managed about $95 billion in foreign stocks for institutional investors.
Capital Guardian racked up a stellar record with foreign stocks in the 1980s and 1990s, but its returns have waned since 2000. The firm’s performance problems have been a hot topic in the pension fund world this year.
Firing Capital Guardian was “one of the most difficult decisions we’ve been confronted with in a while,” said Michael Travaglini, executive director of Massachusetts’ Pension Reserves Investment Management Board, which oversees $32.6 billion in state workers’ pension assets.
Capital Guardian began managing foreign stock assets for the Massachusetts fund in 1990, and the firm has added “an incredible amount of value” to the fund since then, Travaglini said. “But our board had a loss of confidence in Capital’s ability to replicate that success going forward,” he said.
Capital Guardian’s returns on $950 million in foreign shares managed for the Massachusetts fund have lagged behind benchmark foreign indexes for more than three years, Travaglini said.
According to pension industry data, Capital Guardian’s core foreign-stock account grew 3.3% a year, on average, in the three years ended June 30 before fees. That was short of the 3.9% annualized return of Morgan Stanley’s EAFE foreign stock index.
Capital Guardian’s performance shortfall has been more severe in emerging-market stock accounts, industry data show.
Chuck Freadhoff, a spokesman for Capital Group, declined to comment on the Massachusetts fund’s decision.
In an interview with the Los Angeles Times last month, David I. Fisher, who oversees Capital’s foreign-investment unit, said the firm was well aware of its lagging returns. He said Capital had been unable to identify a specific reason for its shortfall in results since 2000 but was making changes to address the issue -- for example, by beefing up stock research coverage in certain industries and regions overseas.
Capital Group, which manages more than $800 billion in all, also is the parent of American Funds, which have been the most popular stock and bond mutual funds with individual investors this year. The funds took in $61.4 billion in net new cash in the first eight months, the most of any fund company, according to Financial Research Corp.
