Minority firms tapped to oversee $800 million in assets.

Raytheon looks to NCM, Ariel and MDL Capital to oversee pension fund monies

An $800 million deal via the Rainbow/PUSH Coalition's all Street Project has set up several minority-owned money management firms for a big payday.

The Raytheon Co., which had $19.8 billion in revenues in 1999, is one of the largest manufacturers of electronics, surveillance, reconnaissance, missile, satellite, air combat and air traffic control systems in the country. It is also one of the largest defense contractors in the world. Raytheon's aviation wing is the world's leading manufacturer of business and special-mission aircraft. It will now entrust 5% of its pension fund assets to women-owned and African American-owned capital management firms during 2000. The Fortune 500 firm employs 105,000 and has $14 billion in its pension plan.

Among the minority-owned firms chosen by Raytheon are NCM Capital Management Group, with offices in Durham, North Carolina, and Washington, D.C.; Ariel Capital Management, based in Chicago; and MDL Capital Management, of Pittsburgh and Philadelphia.

Raytheon was already expanding diversity initiatives beyond its employment practices to external partners when Jesse Jackson and the Rainbow/PUSH Coalition came calling. A few discussions later, Raytheon became an official sponsor of Jackson's Wall Street Project. "When we analyze investment managers across the board, it's based on performance consistent with our investment style. And the firms we selected not only met but exceeded our expectations based on that investment criteria. So I guess when I look at strengths and expertise, it really has to do with their individual investment category and their performance within that investment category," says Rich Goglia, vice president at Raytheon Co. "Fixed income is always a part of a large pension plan, and one or two of our minority-owned managers are, in fact, fixed income managers, not equity managers." As a result, Raytheon increased its 1999 allocation of pension funds managed by minorities from $210 million to $574 million.

Of the firms selected, Raytheon chose them with an eye toward expertise and above-average performance in specific categories. Equity managers would implement gaytheon's core investment strategy, pegged to the stock market's Standard & Poor's 500 stock-index as well as to large-cap growth and several small-cap growth and technology benchmarks. Because fixed-income investment is always a part of a large pension plan, fixed-income managers were also in the loop.

Founded in 1983, Ariel Capital Management has mainly pension fund clients. It also manages some endowment funds and the Ariel family of mutual funds. The firm's tight focus on small-cap value product ($2 billion) and mid-cap value product ($1.2 billion) gave it the expertise needed to secure the new Raytheon contract. Ariel began managing Raytheon's small-cap-value-focused Master Trust pension fund in 1990. Raytheon now has it managing a mid-cap value product as well.

"We have a 17-year track record in small-cap value investing, and we have over a 10-year track record in mid-cap value investing. These are incredibly unique amounts of experience for those sectors of the market," says Ariel Senior Vice President Peter Q. Thompson.

NCM Capital Management Group started in 1986 as a subsidiary of North Carolina Mutual Life Insurance Co. It's been owned by firm management since 1999. Empowered for big commitments, NCM's asset base is $5.8 billion in equity and $1 billion in fixed-income business. NCM concentrates on large-cap growth and value equities. It manages $700 million of the California State Teachers Pension Plan assets.

"The Capital Management allocation is another great step forward in accomplishing the goals of the Wall Street Project," says Maceo Sloan, CEO of NCM Capital Management Group, who also serves as chairman of the WSP. "The Raytheon company understands the benefit to them of expanding the marketplace through inclusion. They're setting a good example for other corporations."

MDL Capital Management has grown from $16 million when it started up in 1992 to $1.8 billion now. A $200 million Boeing allocation, followed by a hefty one from Sprint, propelled earlier growth. Given a shot, MDL proved itself a top performer. Best known as a fixed-income money manager, MDL deals primarily in bond portfolios.

Though not active in the Wall Street Project, MDL benefited anyway. In mid-1999, MDL met and impressed Raytheon officials. "The Wall Street Project has been successful at opening doors not only for its specific members, but for the investment money management community in general," says Mark D. Lay, MDL's chairman and CEO. "Raytheon gives us the ability to go to other corporations globally and say, `Look, we have competed successfully for the business and we are one of the top fixed-income managers that they have.'"