The falling investment markets have brought more business to at least one Philadelphia-area firm. InvestorForce Inc., Wayne, tracks complex investment portfolios for pension funds, endowments and other institutions through its proprietary online portal and software. Chief executive Jim Morrissey says his client base has doubled, to cover 1,000 investment funds worth $2.5 trillion, from 500 funds worth $1 trillion a year ago; his workforce has grown to 35, from 28 a year ago.
He says he's seen an abrupt change in the old "long-term mind-set" of big public and private investors. As stocks plunged earlier this year, "some of the largest institutional investors were still getting reports on how they're doing in a given quarter four to eight weeks after the end of the quarter," Morrissey told me. "You're sitting down with a 200-page binder in April, and talking about what happened in February and March. It's a real rear-looking view."
But, especially since Lehman Bros. failed and the stock market collapsed in September, "plans and their consultants are scrambling to understand their exposures. There's news every day that sends them scrambling to understand their exposure to AIG, to JPMorgan, to Bernard Madoff," the New York broker whose "Ponzi scheme" may cost investors $50 billion, according to the SEC and prosecutors. "They all want to know, 'What kind of exposure do I have today?"
"Our clients are requesting far more frequent updates. They're asking for Web-based access to their investments," agreed Greg Frese, managing director of operations of fund consultant Hammond Associates in St. Louis, which, he said, has picked InvestorForce over two rival services as its "core platform" for client online access. "Even a few months ago, it used to be, 'We'll see you next quarter.' But demand has increased for additional transparency and vastly improved timeliness... These are still long-term investors, but with drastic changes in the market they are making more frequent rebalancing and adjustments."
I asked Morrissey if hedge funds (which Pennsylvania's pension fund and Harvard's endowment bought in hopes of avoiding a stock market plunge) will survive the current collapse. "There's going to be a big fundamental challenge: They earn no performance-based fees unless you achieve performance return. If you're down 25 percent, you have to work your way back up to that" before you get paid. "Given the expense to run a solid organization, a lot of these guys eare going to fold. There's a lot of redemptions are going on. There's fear of the unknown. Especially in this area, where transparency is more difficult. You could see a lot of fiduciaries are moving out of that area.
Morrissey added, "The (college and charitable) endowments can maybe stand the loss. But the pension funds have to hit their targets," and many are liquidating their hedge investments.
InvestorForce is 80 percent owned by Internet Capital Group, Wayne; the rest is owned by Morrissey and his colleagues at the firm.