Asset Manager Smith Graham Acquisition Spurred by Clients’ Demand to Meet Their Yield Requirements

Smith, Graham & Co. Investment Advisors’ newest acquisition was prompted by rising demand from a growing number of clients to meet their yield requirements.

The purchase of the Five Mile Capital Partners Residential Mortgage team by Smith Graham, (No. 5 on BE Asset Managers list with $5.6 billion in assets under management), will allow the firm to expand its product offerings to many institutional investors. Those investors include university endowments, foundations, as well as public and corporate pension funds.

With Five Mile, Smith Graham obtains an alternative investment manager formerly based in Stamford, Connecticut, that invested more than $850 million for about a decade in single-family mortgage loans to help benefit clients like pension funds. The purchase positions Smith Graham to offer existing and potential clients mortgages and real estate debt products for the first time.

The acquisition was essential because institutional investors have dramatically changed how they allocate their assets over the last 25 years, says Donna Sims Wilson, the firm’s president.

Twenty-seven years ago, when the Houston-based firm was launched by Gerald Smith, she says institutional investors mainly put their money into stocks and bonds.

Sims Wilson says that today the average pension fund not only invests in stocks and bonds but also in private equity, hedge funds, and real estate.

Further, the deal allows Smith Graham to offer a fresh investment option with proposed interest rate hikes by the Federal Reserve looming. Higher interest rates can reduce the value of long-term fixed-income securities such as bonds that the firm offers.

“Clients are requiring new approaches to meet their return bogeys in this current volatile environment,” Sims Wilson says.

Financial terms of the acquisition, completed around two weeks ago, were not disclosed. Sims Wilson says the purchase will allow Smith Graham to earn additional revenue by charging clients investment management fees for the new products.

Sims Wilson also emphasized that the Houston-based institutional investment firm has been and will continue to be focused on traditional asset management.

Currently, the firm has about $6.1 billion in assets under management. It has increased that portfolio by about $500 million within the last year by generating additional business with corporate and endowment clients as well as existing customers.

The latest deal comes after Smith Graham completed the buyout of some of the fixed-income and equity assets of Ark Asset Management Co. of New York in 2009.

Jeffrey McKinney is a long-time freelance business writer and reporter, contributing to Black Enterprise magazine for several years on a broad range of business and financial topics.