Recently, Boston-based asset management firm, Grantham Mayo Van Otterloo & Co. (GMO), delivered pink slips to almost 10% of its global staff of 650 employees, according to a research report published by a Morningstar analyst who covers the firm. One of the groups included in this layoff is the firm’s fundamental equity research team.
Fundamental Equity Research Team Cut
Among the professionals leaving GMO are David Cowan, the head of global equities; and Chris Fortson, the head of fundamental research both located in Boston. Cowan and Fortson are expected to depart the firm effective June 30. According to the report by Morningstar’s analyst Leo Acheson, a total of nine equity and fixed-income analysts are being eliminated.
GMO’s equities research team is shifting its focus from fundamental research to a quantitative analytical approach. Acheson explained that “the fundamental equity research within that team…was very mediocre. It was something that really wasn’t adding very much value, so basically they saw no reason to continue doing it.”
While company management refused to comment on the layoffs, one likely reason is the firm’s 20% drop in assets over the past year from $75.6 bln to $60.6 bln. In fact, the firm lost $1.8 bln in investor funds in May – the worst monthly performance seen so far in 2016.
Background on GMO
GMO is a global investment management firm which invests in equities, fixed-income, and real assets founded by Jeremy Grantham, highly regarded as a knowledgeable investor in the global stock, bond, and commodity markets. Grantham initially built his reputation in predicting market bubbles, and he started one of the world’s first index funds in the early 1970s.
Grantham started GMO after working as an economist for Royal Dutch Shell and co-founding Boston-based quantitative asset management firm Batterymarch Financial Management in 1969. Batterymarch was acquired by Legg Mason in 1995 and ceased operations under its name in 2014.
Besides Boston, GMO also has offices in Berkeley California; London; Amsterdam; Sydney; and Singapore.
The staff reduction at GMO, including the elimination of the firm’s fundamental equity research team should not come as much of a surprise. The firm’s steep AUM losses in recent years make the cost cutting move a logical business step.
However, eliminating the firm’s fundamental equity research team and focusing this group’s research on quantitative analysis also makes sense given the mediocre nature of the product, and the founder’s natural attraction towards quantitative research.
The big question for us at Integrity is whether GMO has completed its cost cutting or whether more staff reductions and rationalization is warranted. This is particularly a concern as numerous asset management firms have reported their profits being squeezed by increased government regulations and investor asset flows moving from traditional asset management firms into exchange traded products. We will wait and see.