Chapman Capital Enjoys Robust Growth
March 27, 2000
Nathan A. Chapman Jr. does not have to do a lot of arm-twisting to sell his mutual funds these days. The president of Chapman Capital Management of Baltimore only has to mention the performance of his Domestic Emerging Markets Equity Fund to raise eyebrows and open wallets.
Last year, the two-year-old fund returned 114.08 percent, making it the eighth-best performing growth fund in the United States, according to Lipper of Summit, N.J.
"That usually is enough," said Chapman.
The fund is, of course, rich in technology holdings. But it also invests only in businesses that are run by African-Americans, other minorities and women, a category that Chapman calls "domestic emerging markets." Chapman also runs an index fund and a money market fund.
These days, Chapman, who is African-American, is very busy. He is in the process of taking his new Internet venture - eChapman.com - public. Besides running his money management business, he is also directing his own investment bank, brokerage and insurance businesses, all of which he plans to combine with the Internet company, which could go public this month.
Chapman has also been building up his fund and separate account businesses, which total $865 million in assets under management.
The DEM Equity Fund has $40 million under management, mostly for institutions. Chapman thinks it could be even bigger.
"I think we're going to be a multi-billion dollar fund," Chapman said.
Chapman is building the flagship fund through pension funds, 401(k) plans and strategic alliances. He recently signed an agreement with The Chase Manhattan Bank of New York to sell the fund to retail investors in New York, New Jersey and Connecticut. This represents one of his biggest pushes ever into the retail market.
His most serious inroads have been made into the retirement plan market. The City of Memphis, Tenn. uses the DEM Equity Fund as an option in its 457 retirement plan, and about $72 million of its $1.8 billion pension fund is managed by Chapman Capital Management using the DEM strategy, said Roland McElrath, director of finance for the city.
"They are doing an outstanding job," McElrath said.
DaimlerChrysler AG invested about $10 million of its pension fund in the DEM Equity Fund in 1998, said Cathy Sweeney of Tremont Advisers of Rye, N.Y., a pension consultant to the automobile maker. That investment has more than doubled now.
"I wish all of my managers gave us that return," Sweeney said. "It has just been an incredible year for us."
Early this month, the National Association of Counties chose the DEM Equity Fund to be one of the funds that it offers in a deferred compensation program that it offers county governments through Nationwide Life Insurance Co., Chapman said. More than 360,000 county employees across the country participate in the program, which manages over $6 billion in assets.
Retirement and pension plans are eager to add the DEM fund to their investments because the fund offers investors diversification to almost any portfolio since the strategy is so unique.
"To add us means you don't have to fire anybody," Chapman said.
Chapman says he has not been directly targeting African-Americans or minorities with his fund. But he is targeting institutions like insurance companies, unions and banks that may in turn target these constituencies, he said. His eChapman.com web site, which will offer his funds, aims to target African-Americans, minority and female audiences.
Chapman is not alone in the African-American market. Another fund group that wants to be a leader in the African-American market is the Ariel Mutual Funds of Chicago.
The Ariel funds have $576 million in assets under management in four funds, including a small-cap fund and a mid-cap fund as of March 14, according to Kosier. Both funds had negative returns last year as their sectors were out of favor, company executives said. The funds' adviser, Ariel Capital Management, manages a total of $3.5 billion, which includes separate accounts.
Ariel's executives want to be known as the premier small- and mid-cap investor in the Chicago region. But on the national level, they want to be the mutual fund of choice for African-Americans.
"We want to make sure that mutual funds are accessible for African-Americans," said Merrillyn Kosier, senior vice president with Ariel. "We're finding that they're so hungry for the information, but it hasn't been accessible to them."
Ariel has also tried to sell through the 401(k) market as a way to familiarize investors with the Ariel funds in the workplace. And it is also selling its funds on a retail level through fund supermarkets offered by Charles Schwab & Co. of San Francisco, T. Rowe Price Associates of Baltimore and Fidelity Investments of Boston.
The company, whose president is John W. Rogers Jr., an African-American and former captain of the Princeton University basketball team, has also developed an annual study on African-American investing in conjunction with Schwab. The third study will be published this spring.
The 1999 study found that African-Americans are more likely to keep their money in banks, real estate or life insurance rather than in securities or mutual funds.
Only 30 percent of the African-Americans surveyed in the 1999 study had most of their savings invested in mutual funds or brokerage accounts.
But the Internet is expected to help change that since African-American interest in learning more about investing outpaces that of white, and both groups have easy access to the Internet, the study concluded.
"The heightened interest among African Americans is especially encouraging, and the high level of Internet access offers the industry a direct path of communication," said David Pottruck, co-chief executive officer of Schwab, in a statement.
That could mean more good news for Chapman's DEM Equity Fund and eChapman.com.