After much negative news, the dust seems to have settled at the growth equity shop.
When Tom Marsico manned Janus Twenty
With that successful track record under his belt, Marsico struck out on his own in 1997 by creating Marsico Capital Management. He launched Marsico Focus
The sibling growth strategies went gangbusters in the two years that followed and money poured into the funds and through other subadvisory and separate-account contracts. By mid-2000, Marsico's analyst team was 15 strong and the firm was responsible for more than $15 billion. Seeking to harness the distribution of a large organization, Marsico sold the rest of his firm to Bank of America for a combined total of $1.1 billion on the condition that it would keep an autonomous relationship with a separate compensation structure, benefits platform, and legal department. The year 2000 also marked the launch of two additional strategies, Marsico 21st Century
A Steep Price To Stand Alone
Fast forward seven years: The firm's assets under management increased more than six-fold to $94 billion. Efficient distribution had a hand in that, but the funds’ eye-catching track records also attracted plenty of attention. (Two more funds, Marsico Flexible Capital
- source: Morningstar Analysts
With that period of multiyear growth as backdrop, and feeling no more need for the bank’s distribution capabilities, Marsico decided to buy back the firm in June 2007. At that time, the firm had 71 employees, including three portfolio managers (Tom Marsico, Jim Gendelman, and Cory Gilchrist) and 21 analysts. The main goal of the buyback was to put firm ownership into employee hands, helping ensure its legacy as a stand-alone asset manager. To make that happen, however, Marsico had to borrow a whopping 94% of the purchase price near the market peak and just prior to one of the country’s worst financial crises. While he and a group of 30 employees contributed $150 million in common equity, the firm took on $2.5 billion of debt/hybrid capital to complete the $2.65 billion deal.
Restructuring In Two Acts
The firm’s asset levels climbed for a bit longer, clocking in at $110 billion in October 2007. That trend was about to reverse dramatically, though. The six funds shed between one third to one half of their assets in 2008’s market meltdown. And when the markets came off their March 2009 lows, the funds didn’t keep up as well as they had in other strong bull markets. They fared a bit better in 2010’s slower-paced rally, but outflows from the loss of subadvisory contracts and individual investors took their toll. The firm’s assets under management fell to roughly $43 billion as of August 2010.
That level rose in the following months, but it was still not high enough to service the heavy debt load. So the firm was forced to restructure its debt in November 2010, a move that gave creditors 49% of the firm’s equity in order to eliminate $1.1 billion of the debt. Considering the debt restructuring a default, S&P and Moody’s downgraded the company to near the bottom of their ratings scales. The negative backdrop didn’t stop the firm from launching its first emerging-markets offering, Marsico Emerging Markets, the following month. However, with investors still sour on equity funds and 2011’s negative returns, the outflows continued.