The fruits of discipline: John W. Rogers Jr. and Ariel Capital Management have harvested huge returns through a `slow and steady' approach to asset management - B.E. Financial Company Of The Year - Company Profile

Black Enterprise, June, 2002 by Matthew S. Scott

Every weekday, from his offices on the 29th floor of the AON building in Chicago, John W. Rogers Jr., chairman and CEO of Ariel Capital Management Inc./Ariel Mutual Funds, carefully plans and executes his "slow and steady" revolution. He and his asset management firm have been bucking investment trends on Wall Street for 19 years, managing the Ariel family of mutual funds through an unwavering commitment to the disciplined principles of value investing. They buy strong companies with solid management that have fallen out of favor and hold them until their stock prices climb to the true value.

This philosophy has meant that he has had to endure dry spells when his firm was out of sync with an investment community that didn't value his approach to stock picking. That is, until now.

During one of the most difficult economic environments in more than a decade, the wisdom of Rogers' patient approach to investing is bearing fruit. Lipper, the Denver-based mutual fund research firm, recently rated the flagship Ariel Fund (ARGFX), which Rogers manages, the No. 1 small-cap value fund in the country based on performance over the past 15 years. Morningstar, the Chicago-based mutual fund research firm, recently gave Ariel's mutual funds its top five-star rating for performance.

These funds have performed so well that had you invested in the Ariel Fund or the Ariel Appreciation Fund (CAAPX), which invests in mid-cap stocks, you wouldn't have felt the effects of the tech wreck and dotcom bomb, the recent recession and bear market, or the market volatility caused by Sept. 11. Lipper Research Analyst Jim Shirley says that as of April 11, 2002, the one-year return on the Ariel Fund was 25.09%, with a three-year average return of 17.62%. The Ariel Appreciation Fund had a one-year return of 25.53%, with a three-year average return of 12.90% for the same period. Those are stellar returns during a period when most mutual funds have been unable to harvest any positive returns.

Moreover, business is booming. The firm's assets under management grew a bounteous 51.38%, from $5.165 billion in 2000 to $7.819 billion in 2001, making it the No. 1 company on the BE ASSET MANAGERS list. And the firm has already reached the $10 billion mark for 2002. Because of its phenomenal growth and emerging leadership in the investment community, Ariel has been named the 2002 BE Financial Company of the Year.

ROGERS' SLOW AND STEADY STYLE

For years, the money management firm has managed equity and fixed-income investments for institutional and individual clients. In fact, roughly 75% of the firm's managed assets have come from the pension funds of government agencies, foundations, public entities, and major corporations like Raytheon and Coca-Cola.

Ariel is driven by Rogers' style of management. His strategic vision, competitiveness, and passion for precision have taken root in all operations of the firm. He has built the enterprise slowly, handpicking many employees himself while crafting a team culture that breeds loyalty, productivity, and performance. Leaning heavily on the leadership of Vice Chairman and Co-Chief Investment Officer Eric McKissack, and President Mellody Hobson, Rogers has guided the firm to initiate new-employee training measures and increase its visibility as an industry leader. Maintains Rogers: "I feel like we're hitting on all cylinders."

But now, with a bright--and favorable--spotlight turned on the firm, Rogers has some rather ambitious plans: to become a big fish in a big pond. "We want to build a national brand around Ariel Mutual Funds, where individual investors will think about Ariel first when it comes to investment choices such as IRA rollovers, money they put aside for their kids' college tuition, or their first home," he says. "We want people to have confidence that our brand will give them a high-quality product and good performance."

Investors seem to be getting the message. Take the Appreciation Fund. Since 2000, it has doubled assets to roughly $1.3 billion. McKissack, who manages the fund, says Ariel's overall increase in assets is due to investors' willingness to shift money from one investment to another to maximize returns, as well as the media exposure about the fund's stellar performance. Another big factor, he says, has been their relationships with "financial supermarkets" like Charles Schwab and Fidelity Mutual Funds. "Rather than us going out and selling individually, some of the money comes in directly through [Schwab and Fidelity]," explains McKissack. "When people go into their programs and pick funds that they want to invest in, they pick us."

CAREFUL CULTIVATION OVER TIME

Putting together a firm that can take on the mutual fund giants and win isn't easy. It has taken a significant amount of time and substantial effort to plant the right seeds. Rogers, McKissack, and Hobson share the major responsibilities of running the company. The triumvirate collaborates on long-term strategic initiatives and internal operations, as well as collectively promotes Ariel's public face. Their marching orders are carried out by an experienced management team, most with eight years of experience or more at the firm. For instance, Ariel's Vice President and Head Trader Cheryl A. Carrie has served eight years; Vice President and Chief Information Officer Roger P. Schmitt has been with the firm nine years.