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After $27B drop, a Turner turnaround?

New funds, capital, lawsuits, 5 stars

Turner Investments LP, the Berwyn-based mutual funds and portfolio management firm, managed $28 billion at its peak in 2008, for clients awed at how the team headed by founder Robert Turner beat stock fund benchmarks. 
Big insurance companies, Pennsylvania and other states, Philadelphia and other cities, colleges, and corporate and union retirement plans invested with Turner. Even Vanguard Group, the great champion of autopiloted index-fund investing, paid Turner to pick stocks for its Vanguard Growth Equity fund.

But now those blue-chip clients are gone, Turner Investments L.P. manages around $600 million, and many of the top managers who did star turns as Turner stock gurus on CNBC and in Dow-Jones publications during the firm's fat years have left, some acrimoniously.

Twenty-five years after he quit Meridian Bank to start his own investment house, Turner is still hiring seasoned stock-pickers, rolling out new products, trumpeting Morningstar Inc.'s new five-star rating of his Turner Medical Sciences Long Short Fund, and marketing to a next generation of hopeful investors. Last week he put out a press release naming investors from Dubai and Hong Kong who he said have invested in his firm. The sums they invested weren't reported.

Turner, son of a union boilermaker from Yates City, Ill., a generous donor to colleges and politicians. is also busy in court, fighting at least four of his former stars and two of the firms they left him for, after Turner cut bonuses and didn't complete a proposed sale of his shrunken firm.

While Turner, his firm's new chief executive Stephen Negrotti (formerly Turner's outside auditor at Ernst & Young), and other current and former Turner managers declined to comment, citing the litigation, Chester County Common Pleas Court records and federal Securities and Exchange Commission filings detail the decline.

Turner funds suffered in the financial crisis that wrecked investment markets, just weeks after Turner predicted a massive rally in U.S. stocks in August 2008. But his funds came back strong in earlier market blow-ups, especially in the years after the bubble, when Turner sent analysts around the globe to find companies that helped beat the market, enabling his funds to grow faster than ever, as other investment houses languished.

In 2007, Turner had filed to take his firm public on the Nasdaq stock market, revealing the funds had paid him more than $20 million so far that year, and more than $30 million the year before.

That initial public stock offering (IPO) was withdrawn in the crash of 2008. Over the next five years, Turner funds too often failed to repeat their old magic.

Vanguard fired Turner in 2009. Philadelphia fired Turner, once among the underfunded system's largest managers, for "underperformance" in 2010. Pennsylvania's state pension fund (SERS) and state treasurer Rob McCord (one of the prominent Pennsylvania public officials whose election campaigns Turner helped finance) also dropped Turner.

By 2013, pressed by longterm employees tired of watching assets evaporate, Turner agreed to seek a buyer for the firm, which still managed $8 billion. Lazard Asset Management made an offer. Delaware Investments, of Philadelphia, also showed interest, among other firms.

Turner rejected Lazard's offer as too low -- and fired senior manager Andrew Glaser, who had negotiated the deal. He pursued a higher offer, but in the end did not sell the firm, according to court records. 

Other big clients left. Other longtime and high-ranking employees quit. Glaser joined Lazard. He was followed there by Turner veteran Frank Sustersic, one of the firm's most-visible fund managers, who had been urging Turner to sell the group to a deep-pocketed buyer that could finance a revival.

In December, Turner lost William McVail, a 15-year veteran who said Turner owed him unpaid bonuses. McVail applied to join Philadelphia-based Penn Capital -- but found Turner wouldn't confirm McVail was free to take another job under his old contract. 

In September, McVail sued Turner in Chester County Common Pleas Court, charging "tortious interference" with Penn Capital and listing others who had lately left Turner: Tom Trala, Turner's late executive managing director and chief financial officer, now at Franklin Square Capital Partners in Philadelphia; James Wylie, chief marketing officer, now at Newton Capital Management in Massachusetts; John Finnegan, managing director-client servies, now at Delaware Investments; Sorin Roibu, global stock analyst, now at Brandywine Global in Philadelphia; Joshua Kohn, portfolio manager, now at Centre Square Investments; Jonathan Treitel, portfolio manager, now at Columbia Partners in New York. And more.

Turner's lawyers responded that McVail's "abrupt departure" caused "the loss of clients" and at least some of the $2 billion he had managed. McVail denied he hurt Turner, noting he was soon replaced.

Turner sued Sustersic and his new employer, Lazard, arguing that firm, having failed to buy Turner, had decided "it would obtain the components of Turner's business that Lazard wanted by less honorable means." Turner said Sustersic and Lazard used "confidential information and trade secrets to set up competing mutual funds that mimic what Turner offers." Lazard and Sustersic denied doing anything illegal. Their attorneys declined to comment for this story.

In January, Turner sued two more of his ex-stars, Ralph Wetmore II and Donald Smith, and their new employer, BNP Paribas Investment Partners, alleging the pair "absconded to BNP with Turner's trade secrets, confidential information and knowledge that Turner invested years and millions of dollars to develop," violating their contracts.

To the contrary, the defendants responded, it was Turner who violated Smith's and Wetmore's employment agreements, when the firm cut their pay. They said Turner's allegation that the pair, by leaving, forced the fund they used to manage to close "is completely inconsistent" with Turner's report to the SEC about the fund's closing, which didn't mention their departure.

In a document they filed with the court, Smith and Wetmore said they left, after a combined 23 years, because "Turner no longer resembled" the firm they joined: "Its assets were plummeting, its funds were closing and its senior executives and portfolio managers were departing." The pair "found themselves in a frightening situation, stuck in dead-end positions overseeing a marginally viable investment fund for an employer facing numerous obstacles and offering them a dubious future at best." They left, they added, "to support their families."

The men's response also featured a humbling argument, in these times when former celebrity stock-pickers like Turner are pressed by passive indexing, superfast trading algorithms and exchange-traded funds: The processes and methods Smith and Wetmore used, formerly at Turner, now at BNP Paribas, aren't special or proprietary, their lawyers wrote; they "are merely the typical tradecraft that any investment management company would use."

In a filing last month, Turner's lawyers still insisted its former employees' "breach and theft" had "completely destroyed" its business. The cases aren't yet scheduled for trial.