Morningstar Advisor - October/November 2013 - (Page 55)

When Corkins showed up, it sounded like a perfect match. He didn’t want to be center stage, which intrigued me. It’s not like he came in and said, ‘I’m in charge. Let’s do this, that and the other.’ Jim Glavin several reasons. In the minds of wary investors, it likely stabilized AIM, which was one of the best small independent fund companies in the United States when Aster was at the helm. The deal also signals that Arrowpoint is a firm worth watching as it enters the retail fund business and possibly adds to its lineup in the future. While the union makes sense, there will be challenges to pulling off the marriage. First up will be the task of meshing the two firms. Arrowpoint agreed to retain a majority of AIM’s current staff. There will be a premium on communication because the two firms will remain in their respective locations: Denver and Larkspur, Calif. Maybe more pressing is the overhaul of Meridian Growth, a job that will fall to new hires Chad Meade and Brian Schaub, who posted a stellar seven-year record at Janus Triton JGMAX before leaving earlier this year for Arrowpoint. Then, there is the work of pulling the moving pieces together within the confines of a growing firm. Arrowpoint doubled in size to more than $5 billion after shareholders approved the deal in September. However, Corkins and co-founder Karen Reidy aren’t interested in creating another version of Janus. Instead, they have focused on attracting top talent, with asset flows a pleasant side effect. “We wanted to be big enough so that we didn’t have to worry about raising money, but we still wanted to be nimble,” says Corkins. “We are always looking for human capital first and then an opportunity.” Coming Together In many ways, it isn’t surprising that AIM merged with Arrowpoint Partners. Corkins had met Aster through the years and respected the track record he had amassed before his death. Corkins was also acquainted with Michael Stolper, a Meridian Funds board member who previously served in a similar capacity at Janus. In addition, the two firms invested with a similar mindset: Buy financially sound companies with competitive advantages that are trading at a discount to their intrinsic value. When Corkins heard AIM was searching for a buyer, he and his team started poring over the holdings of Meridian Growth, Meridian Value MVALX, and Meridian Equity Income MEIFX. They found overlap between what the three Meridian funds owned and the companies they had analyzed for Arrowpoint’s own accounts. It was clear, says Corkins, “Meridian was a good fit in terms of philosophy.” Other firms thought so, too. By all accounts, the Meridian trustees handled a tough situation well. When Aster died, they canceled AIM’s advisory contract and reinstated the firm on a temporary basis until shareholders could vote on a new agreement. They also set about exploring deals with several firms. In late 2012, they were close to signing with one that would have left AIM largely intact. The outside investor, though, let the deal expire. “We had a handshake and then they kept negotiating,” says Glavin, who grew frustrated with the suitor. “When they let the time expire, we had had enough.” Corkins and team quickly made an offer. For AIM, a main concern was cashing out Aster’s heirs while at the same time preserving his legacy. To Arrowpoint, the transaction made sense because its leaders had talked about getting back into the retail fund business. It had started laying out the infrastructure for such a move, including taking a stake in Destra Capital, which will serve as one of the primary distributors for the Meridian Funds. Both sides also say they were pleasantly surprised after meeting face to face. “When Corkins showed up, it sounded like a perfect match,” says Glavin. “He didn’t want to be center stage, which intrigued me. It’s not like he came in and said, ‘I’m in charge. Let’s do this, that and the other.’ ” Preservation, But Not Without Change While Arrowpoint will keep most of AIM’s staff, the office in California, and the Meridian name, fundholders should brace for Arrowpoint to make some changes. Mainly, Meade and Schaub will overhaul Meridian Growth, whose Morningstar Analyst Rating is currently under review during the transition. Aster built this portfolio by searching for companies capable of growing their earnings at least 15% a year. He avoided overpaying for his best ideas, which meant the portfolio’s price multiples were often lower than the mid-growth category average. He also kept the portfolio focused on just 45 to 55 holdings and routinely avoided commodities and energy, investments he deemed too volatile. Aster posted a 12.8% annualized MorningstarAdvisor.com 55 http://www.MorningstarAdvisor.com

Table of Contents for the Digital Edition of Morningstar Advisor - October/November 2013

Morningstar Advisor - October/November 2013
Contents
Contributors
Letter From the Editor
How to Make Social Media Work for You
Do Mutual Funds Still Have a Role?
More Personal Than Finance
How to Handle Your TIPS Positions
A Real Estate Veteran Starts From Scratch
Investments á la Carte
Investment Briefs
When to Say No
Take a Guarded Approach to Homebuilders
Fund Distribution Has Been Turned on Its Head. Now What?
Winning the Distribution Battle
Active ETFs Wait for Their Heyday
A Fund Firm Defies Indexing Trend
Piloting New Channels
A Good Fit
The Predictive Power of Fair Value Estimates
Does Being Prudent Pay Off?
Utilizing Utilities’ Total Return
Stuck in the Middle Is Not a Bad Place to Be
Our Favorite Mutual Funds
50 Most-Popular Equity ETFs
Undervalued Stocks With Wide Moats
The Good Guys Win

Morningstar Advisor - October/November 2013