1-2 PUNCH RATTLES HIGH-FLYING NCM: MAJOR CLIENTS LEAVE MINORITY MANAGER AFTER STAFF EXODUS

The nation’s largest minority-owned money manager may be falling off its perch.

NCM Capital Management Group Inc. of Durham, N.C. — subadviser to $1.5 billion in assets in “socially responsible” mutual funds for Dreyfus Corp. and Calvert Group. — has lost key pension fund clients in the wake of a staff exodus and a lawsuit by former employees alleging broken promises, mismanagement, wasteful spending and retaliatory firings.

The controversy has cost NCM Capital, run by prominent black financier Maceo Sloan, an estimated $325 million to $800 million in assets, according to former employees and industry watchers.

Mr. Sloan confirms client losses, but declines to discuss specific names or numbers. “It’s nobody’s business.”

Nevertheless, the bleeding may well cost NCM, which reported $4.2 billion in assets under management last year, its No. 1 ranking among minority-owned firms. Baltimore-based competitor Brown Capital Management Inc. — also a subadviser to Calvert funds — recently has grown to $3.9 billion under management, says President Eddie C. Brown, touting his firm as an “American success story.”

NCM had been a success story, too. A darling among public and private pension funds, with such institutional clients as Kmart Corp., Avon Products Corp., Colgate-Palmolive Co. and the cities of Baltimore, Chattanooga and Hartford, the company entered the booming retail arena by striking agreements with Dreyfus and Calvert in 1994 and 1995, respectively. The retail effort grew to account for more than one-third of assets last year.

But the 12-year-old subsidiary of holding company Sloan Financial Group Inc. has lost an estimated two dozen pension fund clients since late 1996, including the Hartford Employees’ Retirement System and the City of New Haven Police & Firemen’s Pension Fund.

NCM lost some clients because the pension funds were consolidating their adviser forces. But the client exodus also was triggered by employee turnover — including the departures la
st year of three stock portfolio managers and four senior marketing professionals — as well as the lawsuit, filed in December by one of the former managers and two of the former marketing executives.

“I think it is the lack of confidence in the company because it has undergone such an outflow of talent” that has caused many clients to flee, says Tony Chapelle, publisher of Securities Pro, a New York-based newsletter focusing on African-Americans in finance.

Mr. Sloan concedes that NCM clients have fled, but he says the employee changes were part of a restructuring intended to de-emphasize marketing and devote more resources to investment management. He says he expected NCM to lose clients who had relationships with the employees who left.

Even with the lost business, Mr. Sloan says, assets under management have held steady at $4.2 billion because of a 30% return on stock investments and inflows from new and existing clients. NCM, for instance, recently won a mandate from the state of Ohio to run $65 million in growth equity.

“In the last two years, I’ve spent millions upgrading our systems,” Mr. Sloan says. “The reorganization was for the good of our clients. This lawsuit is a business disaster, but not material to the operation of NCM Capital.”

buyout attempt failed

The suit largely stems from a failed attempt last year by eight employees to buy a 40% stake of Sloan Financial owned by American Express Financial Advisers Inc. All eight employees have since left the firm, including two who say in the suit they were fired in retaliation and one who says in the suit he had been promised an ownership stake in NCM that he never received.

The three former employees contend in their suit that the buyout deal was squelched by Mr. Sloan, who formed Sloan Financial when he bought NCM in 1991 from North Carolina Mutual Life Insurance Co. with the help of $7 million from what is now American Express Financial Advisors. (One of the founders of North Carolina Mutual Life in 1898 wa
s Aaron McDuffie Moore, Mr. Sloan’s great-granduncle.)

The suit also contends that Mr. Sloan did not pay dividends to American Express for three years. It alleges he diverted money from NCM to Sloan Financial’s African investment unit, New Africa Advisers Inc., the subadviser to Calvert’s New Africa Fund. It claims Mr. Sloan and Justin Beckett, chief executive officer of New Africa Advisers, “wasted” money on a $4.5 million corporate jet in 1994 and on $1.2 million in travel and entertainment in 1995.

American Express is named, according to the former employees’ attorney, because its representatives encouraged the employee group to buy its stake in NCM. American Express declined to comment, saying the accusations are “without merit.”

Mr. Beckett could not be reached for comment, but an attorney for both him and Mr. Sloan denied any mismanagement, waste or improper diversion of funds, according to a court motion to dismiss the suit.

Adds Mr. Sloan: “We think the press is being used to attempt to put pressure on American Express and Sloan Financial . . . to settle.”

A spokesman for Dreyfus, which renewed its advisory agreement with NCM last summer, would say only that the New York no-load company is pleased with the job NCM has done managing its $786 million Dreyfus Third Century Fund — a “socially responsible” stock fund — and a Dreyfus annuity account.

Third Century Fund posted a 12.65% year-to-date return and a one-year return of 36.89% as of March 17, according to Morningstar Inc., which in a report last fall raised concerns about the employee turnover. Morningstar ranks the fund in the top 43% of its large-cap growth category year-to-date and the top 50% for the one-year period.

The Calvert Group also is sticking by NCM, which manages $420 million of the Bethesda, Md.-based fund company’s $5.4 billion in assets.

Calvert screens stocks for such socially responsible investing criteria as labor policies, “enlightened workplace practices” and &qu
ot;forward-thinking management,” according to marketing materials. Chief Investment Officer Reno J. Martini sees no irony in the suit’s allegations against NCM. “We didn’t find any reason to pressure them or take money away from them.”

In addition to the $11 million New Africa Fund managed by Sloan Financial’s New Africa Advisers for Calvert, NCM is a subadviser for Calvert’s $720 million Social Investment Fund Managed Growth — a balanced fund — and a $255 million balanced annuity fund.

in the depths

New Africa Fund returned 11.73% this year through March 17, putting it in the bottom third of its foreign equity category, according to Morningstar. Meanwhile, the Social Investment Fund had a year-to-date return of 9.66% for A shares as of March 17 and a 12-month return of 26.25%, putting it in the top 43% and bottom 20% of its mid-cap value category, respectively.

Mr. Sloan predicts he’ll emerge unscathed. “I don’t particularly care,” he adds, “whether we are the largest minority-owned investment management business.”

Good thing, because competitor Brown Capital Management appears to be coming on strong.

Earlier this month it was selected to manage $200 million more for the California Public Employees’ Retirement System, bringing its total assets under management to $3.9 billion, according to Mr. Brown. That’s up from $3.3 billion at the end of 1997, when it was the country’s No. 2 minority-owned money manager.

The 15-year-old company also is a subadviser for $244 million in Calvert’s Social Investment Fund Managed Growth, Capital Accumulation Fund and Mid-Cap Growth variable annuity account.

Mr. Brown declines to comment on NCM. “I don’t really focus too much on our size and positioning relative to other minority- or majority-owned firms,” he says. “Size for its sake is not my goal.”

Linda Sakelaris of Pensions & Investments contributed to this report.