Vanguard replaces Chartwell of Berwyn; owner spikes deal with Philly's Aberdeen (Update)

An ambitious Pennsylvania bank's plan to build a Main Line-based investment business has changed direction after the loss of a $2.8 billion client and the cancellation of a $4 billion acquisition.

Vanguard Group, Malvern, says today that it has fired Chartwell Investment Partners, Berwyn, as a co-manager for $2.8 billion at two actively-managed stock funds — $11 billion-asset Explorer and $4 billion MidCap Growth.

Also, Chartwell owner Tri-State Bank, based in Pittsburgh, with offices in Radnor and Berwyn, says today that it has cancelled plans to buy $4 billion in bond investments run by a team of managers from Aberdeen Asset Management Inc. in Philadelphia.

Vanguard's Mid-Cap Growth has fallen an average 0.3% short of its benchmark Russell Mid-Cap Growth index (corrected) over the past 10 years, writes Daniel P. Wiener, publisher of the Independent Adviser for Vanguard Investors newsletter. At Explorer, "any reduction in managers is a good move," given Explorer's "overwhelmingly bad performance," Wiener added.

"We continuously review the management teams of the Vanguard funds, and after careful review, we've determined the new arrangements will best serve shareholders moving forward," said Vanguard spokeswoman Adrianna Stefanoni-Sherlock. Vanguard statement here.

The $2 billion Chartwell had invested for Vanguard Mid-Cap Growth has been transferred to California-based Victory Capital Investors' RS Investments. The $800 million Chartwell ran for Explorer will be divided between two other Explorer managers, Arrowpoint Asset Management and Stephens Investment Management.

Tri-State Bank also says it "is terminating the definitive agreement" it announced in October to buy $4 billion in bond assets from Scottish-owned, Philadelphia-based Aberdeen, and take over a team of six Aberdeen bond managers plus support staff, "after determining the seller would not meet certain of its closing conditions."

UPDATE: Four Aberdeen bond managers have left the firm, spokeswoman Katie Cowley confirmed. Senior portfolio managers Neil Moriarty and Stephen Cianci, head of municipal bonds Michael Degernes and mortgage bond manager Stefan Martin departed this month.

Moriarty had filed a federal lawsuit last year complaining he had been wrongfully denied a job as head of Aberdeen's North American Fixed Income team in favor of a younger manager, Charles Tan. That suit has been settled, Cowley said.

Despite the departures, "Aberdeen continues to be in a position to deliver all its fiduciary obligation to its clients," and Tan remains Head of Aberdeen's North American Fixed Income unit, Cowley concluded.

EARLIER: Tri-State says Chartwell investment-management revenues should top $37 million this year, up from around $30 million last year. Vanguard fees accounted for about $4.5 million of this year's Chartwell sales, and the loss will shave about 2.4 cents off Tri-State's yearly profits. 

Tri-State bought Chartwell and its then-$7.5 billion in assets (including the two Vanguard portfolios)  in 2014, and last year added Killen Asset Management, owner of the $2.5 billion Berwyn Funds investment group.

Without Vanguard or Aberdeen, Chartwell will manage around $8 billion, and generate profits of around 20 cents a share for TriState, the bank calculates.

"While we are clearly disappointed" by Vanguard's decision, Tri-State still expects Chartwell "will deliver robust revenue growth, with increasingly positive top- and bottom-line contributions to TriState Capital in 2017 and beyond," TriState Capital Chief Executive Officer James F. Getz said in a statement.

He said the firm's non-Vanguard accounts have been growing a lot quicker than the funds it managed for the Malvern-based fund giant.

Chartwell also said it has hired Frank L. Sustersic, CFA, as Senior Portfolio Manager.

Sustersic, a Wharton grad, previously worked at Lazard Asset Management, New York, and at Turner Investment Partners, another Berwyn-based firm. Turner had tried to keep Sustersic and other managers from leaving as Turner lost clients, including Vanguard, in the years after the 2008 financial crisis.

"We are pleased to have someone with (Sustersic's) reputation, experience and track record on board and leading our growth equity team," Chartwell Managing Partner and Chief Executive Officer Timothy J. Riddle said in a statement.