Acorn becoming an oak Growth: Croft-Leominster Inc., a small investment advisory firm in downtown Baltimore, has in seven years become one of the top performers in the country, managing $368.6 million in private and institutional funds.

December 30, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Croft-Leominster Inc. is hardly a household name in Baltimore's money management circles, but the small firm on East Redwood Street is blossoming into a stellar performer.

The 7-year-old company ranks in the top 5 percent in equity performance out of 563 investment advisory firms in the country for the three years that ended in 1995, according to CDA Investment Technologies, an independent ratings firm based in Rockville.

And its $7 million bond fund, known as the Croft-Leominster Income Fund, ranked sixth out of 101 funds in the country, returning 9.55 percent for the 12 months that ended Nov. 30, a Lipper Analytical Services Inc. survey shows.

"We are competing with the big boys pretty well," said Gordon Croft, vice president and director.

Croft, who is 63, runs the firm with his 33-year-old son, Kent G. Croft, the company's president and founder.

The firm manages $368.6 million in private and institutional money, including $2 million that is invested in an equity mutual fund, $7 million in the bond fund, and about $28 million in five limited partnerships.

The Crofts say their strong results are due to their contrarian investment style.

"We are bottom-up people," Kent Croft said. "Whenever anybody else hates [a stock] or gives up on the stock, that's when it piques our interest. You have to be different to out-perform."

The Crofts bought a battered Citicorp in 1991 for $9 a share. Today, it trades in the $104-a-share range. Oryx Energy Co. was another the firm liked when it was down to $11 a share about two years ago. The stock has since doubled in price.

Such investments have lifted the performance of Croft-Leominster's portfolio. It returned 139.7 percent, compared with the Standard & Poor's 500's 115.3 percent from Dec. 31, 1990, to Dec. 31, 1995.

The Crofts estimate that their portfolio is up 19 percent for the year, trailing the S&P 500's 20 percent and the Dow Jones Industrial Average's 26 percent increase.

"If we've made mistakes this year, I think we have been a little too cautious," Kent Croft said. "You are not going to see the 50 percent one-year returns from us. We would tend to be less volatile than the more speculative firms."

But strong returns haven't guaranteed clients. The Crofts were stunned four years ago when Princeton University's endowment fund pulled $450 million, cutting the firm's assets by nearly 60 percent.

The university was reviewing its investment portfolio and dumped Croft-Leominster even though it was returning 28 percent on the investment.

The Crofts say they were dropped because the firm is small and not a "household" name.

Since the university pulled out, the firm's assets have climbed back to $368.6 million from $151 million in 1993.

"We have become a stronger firm by not becoming so dependent on one client," Gordon Croft said.

The firm has about 50 accounts. Investors who want their money privately managed need $500,000 to start, but an account can be opened at one of the two mutual funds with $500. Croft-Leominster also offers investors a handful of limited partnerships that require an initial $50,000 investment.

The partnerships are similar to mutual funds because they pool investors' money and invest in everything from growth to international stocks. The partnerships are open only to "sophisticated" investors, or people who have more than $200,000 in annual income or are worth more than $1 million.

The Crofts charge a minimum fee of $4,000 for private accounts and give discounts to customers who invest larger sums.

The Crofts started the firm with $100,000 of their own money.

Kent Croft worked at Salomon Brothers as an assistant equity analyst, but he tired of New York after three years and moved to Baltimore.

His father was a managing director at T. Rowe Price, and he oversaw $1 billion in fixed-income and private accounts. He thought Price was growing too large, so he left to join his son.

Although he doesn't envision the company becoming another Alex. Brown or a Price, Gordon Croft says Croft-Leominster will win its share of business if its performance continues.

"I describe myself as being hungry," he said.

Pub Date: 12/30/96

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