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As Oakmark Grows, Investors Loom Large

Oakmark's investing-centric corporate culture is solid, but lower fees would be welcome.

Shannon Zimmerman, Fund Analyst, 04/13/2011

Following big inflows of new cash and a major change in the ranks of its executive staff, Oakmark's culture remains investing-centric and shareholder-aligned. The firm has room for improvement when it comes to costs, but Oakmark shareholders can feel confident that they've entrusted their wealth to a firm whose commitment to its clients largely correlates with its managers' investment prowess.

Assets Spike
The shop has enjoyed eight consecutive quarters of healthy inflows, taking in an estimated $1.7 billion in the first quarter of 2011 alone. At more than $40 billion, total net mutual fund assets are at an all-time high according to Morningstar's data, having nearly doubled since the first quarter of 2009. Including separately managed and subadvised accounts, Harris' firmwide assets stood at $62.5 billion at the close of 2010.

The shop's asset spike could be worrisome, at least in theory. In practice, except in the case of David Herro's Oakmark International Small Cap OAKEX, the firm's dramatic asset growth represents little cause for concern. Oakmark's managers primarily target highly liquid large-cap stocks, an area of the market where market-impact risk--the risk of moving prices against the funds as managers build or exit positions--is negligible. And while International Small Cap's $1.7 billion makes it one of the industry's largest foreign small/mid-cap funds, Oakmark has demonstrated its willingness to protect shareholders' interests by reining in inflows when asset bloat threatens.

With more than $20 billion under management, for example, moderate-allocation offering Oakmark Equity & Income OAKBX has been closed to most third-party platforms since May 2010. International Small Cap itself was closed to new investors for more than half of the last decade.

Headcount and Transitions
With roughly a third of Oakmark's assets residing in international portfolios, the firm has taken additional steps to ensure it has the capacity needed to run significant sums of international money. Though the firm's overall investment-staff headcount has remained steady, several new analysts have joined the international side of the shop in recent years.

All told, the firm's roster includes 11 portfolio managers and 15 investment analysts, two of whom also have portfolio management responsibilities. Win Murray--who joined in 2003 and whom long-time portfolio manager Bill Nygren identifies as one of Oakmark's future leaders--serves as associate director of research.

Oakmark's staff is clearly a seasoned crew, and a steady one as well: Median manager tenure at the shop ticks a bit above 11 years. And while a number of managers have left the firm over the years, their departures haven't jeopardized investment continuity. For example, when former Oakmark International and International Small Cap comanager Mike Welsh exited in 2005, David Herro--a manager on both funds since their inceptions in the 1990s--remained in place. Herro's continued presence minimized the impact of Chad Clark's 2009 departure from International Small Cap's management team, too.

Similarly, when Oakmark Global OAKGX comanager Greg Jackson left the firm in 2003, the shop tapped Clyde McGregor--a three-decade Oakmark veteran--to join Welsh at the helm of that world-stock fund. And when Welsh left, Rob Taylor, a seasoned Oakmark analyst, got the nod to replace him. (In 2008, Taylor also joined Herro as comanager of Oakmark International.) Worth noting, too, is that the firm's portfolios are built from a common list of approved stocks--another means of ensuring consistency when investment talent moves on.

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