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Niche Value Manager Cambiar Chooses Slow Growth


Being a value-oriented investment management shop based in Denver, a city well-known for growth managers including Janus Capital, Invesco and Founders Capital, it can sometimes feel like you are a fish swimming against the tide.

But Cambiar Investors, with $2.4 billion in assets under management, has chosen to stick to its relative-value style in both domestic and international investments. That style doesn't include bottom-fishing for down-and out stocks, the kind that deep-value managers hope will eventually emerge from the bargain sub-basement.

Instead, Cambiar seeks out between 35 and 45 companies that are cheap compared to their historic prices and the value of their peers, and then looks for a compelling reason to buy them. "We look to find where anxiety has caused a discount disconnect that can last several weeks, quarters or even years [before] those anxieties begin to dissipate," said Brian M. Barish, president and director of research for Cambiar Investors.

As a small firm, Cambiar has no desire to become a behemoth in the mile-high city or anywhere else. Nor has it any intentions of creating a fund-of-the-month club, or hiring a horde of product wholesalers. However, it certainly won't turn away new money, and it is carefully managing its own growth. Like its value investment philosophy, the firm prides itself on fostering relationships with a few valuable employees.

Despite being a tiny blip on the overall mutual fund radar screen, Cambiar has seen steady inflows of $2 million to $3 million per week over the past year into its two proprietary no-load mutual funds. The funds are sold through both the retail and institutional marketplaces of fund supermarket providers. Still, with a current combined $125 million in assets, those funds account for only 5% of the firm's assets.

The first is the Cambiar Opportunity Fund, launched in June of 1998 with one institutional share class, originally designed to allow the firm to enter the 401(k) plan arena. The second, the Cambiar International Fund, converted from a private trust begun in 1997 and was first made available in a public mutual fund format in September 2002. That fund, too, launched with a solitary, institutional share class.

That institutional share class has served the needs of financial advisers, many of whom consider themselves to be quasi-institutional investors. But in order to really make inroads into the 401(k) marketplace, the firm has filed a shelf registration for an "R" share class, and hopes to launch a small-to-mid cap value fund in the future.

A Nifty Niche

In light of the fund industry scandal, many investors and financial advisers alike have set their sights on finding smaller, niche investment managers like Cambiar that lack the complex marketing labyrinths and ties that led to problems. "We are benefiting from other people's problems," concedes Barish. "Lots of people paid for name-brand recognition but found out it wasn't all that favorable."

Cambiar has actually seen its best growth within the separately managed account (SMA) side of its business, a business the firm entered a dozen years ago. Its SMA business has been growing steadily, and now accounts for about 30% of the firm's assets, said Barish, who until 1997 worked handling emerging market activities at Lazard, Freres & Co. in New York before moving to Denver. Cambiar's separate accounts are available within the programs of Wall Street's largest players, including Merrill Lynch, Salomon Smith Barney and UBS/Paine Webber.

"Especially in the high-net-worth market, people are really moving more toward SMAs and away from mutual funds," Barish noted. "In absolute dollars, our managed account business is growing the fastest."

Being a smaller niche player with limited marketing muscle has actually helped Cambiar roll with the managed account punches, he said. As managed account platform providers have scaled back the fees paid to outside money managers by, in many cases, 7% to 8%, Barish notes that his firm hasn't been significantly impacted. "Because we don't have this giant body of [sales] reps, the fee compression hasn't affected us much," he said. But he is keenly aware that the profit margins on managed accounts are considerably thinner than those of mutual funds.

Despite these lower margins, Barish predicts that five years from now, SMAs will account for a full 50% of the firm's business, fueled by his desire to more fully develop the firm's international and global investing capabilities and parlay that deeper into the SMA distribution channels.

Rekindling Independence

Founded in 1973, the firm adopted its namesake Cambiar, the Spanish verb for "to change," in recognition of the fact that markets and conditions can and do change. When the firm was started, it originally catered only to high-net-worth investors. As time went on, it added institutional investment management for pension and endowment clients, managed accounts, and the two mutual funds, said Barish, the son of the original founder of the firm.

Looking to exit the industry, in 1990 Barish's father sold the firm to United Asset Management (UAM) of Boston, the investment advisory holding company of dozens of small, predominantly institutional investment advisory firms. UAM was itself purchased by Old Mutual PLC of the UK for $2.2 billion in September 2000.

Five months later, the junior Barish, along with several other Cambiar executives, executed a management buyout and regained full ownership of the firm. "As a privately held company, you can stay focused with no marching orders from others," Barish said.

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