Value Investor AJO Partners To Close Up Shop As Investors Seek Higher Returns Elsewhere

AJO Partners, a quantitative value fund manager based in Philadelphia, will shut down later this year after having incurred significant losses in a climate of low interest rates.

AJO, which manages $10 billion in assets, will return money to its clients, the Financial Times reported. (In 2007, just prior to the global recession, AJO managed $31 billion in assets).

AJO founder Ted Aronson told investors by letter that his firm will cease trading on Nov. 30, then wind down the business on Dec. 31. AJO’s clients include various public pension plans.

Value investing focuses on stocks that are deemed to be trading below their intrinsic or book value. But in 2020, as tech has pushed equity indexes into record territories, such stocks have been hard to find.

AJO’s biggest investment vehicle, the $5.1 billion AJO Large-Cap Absolute Fund, dropped 15.4% through the end of September. Small-cap value stocks fared even worse – the AJO Small-Cap Absolute Fund plunged 21.2% through September.

In his letter, Aronson said the decision to close was due to “market forces.”

“The drought in value -- the longest on record -- is at the heart of our challenge,” Aronson wrote. “The length and the severity of the headwinds have led to lingering viability concerns among clients, consultants, and employees.”

Growth stocks – which deliver rapid increases in sales and profits -- have outperformed this year, especially as near-zero interest rates have pushed investors to seek higher premiums elsewhere away from fixed-income.

“Our relative performance has suffered because our investment edge, our ‘secret sauce,’ is at odds with many forces driving the market,” Aronson said in the memo.

The Russell 1000 value index has slumped about 10% year to date, while the Russell 1000 growth index has surged nearly 30%.

“We are in uncharted waters with such low interest rates and that has been humbling for value investors,” said Aronson. “When cycles return, and they will, there will be a case for U.S. value stocks.”

Gina Moore, co-chief executive of AJO, said the underperformance of value stocks this year was worse than what they endured in the late 1990’s during the dot.com craze – when high-flying growth tech and internet stocks soared in price. Those stocks subsequently collapsed.

“The duration of [the dot.com mania] was so much shorter and while perhaps it was at a greater magnitude . . . you could survive that, ” she said. “ Doing this for the last decade has tried our patience [and] it has certainly tried the patience of our clients."