GROW LITTLE GROWWORM STYLE SLIPS AT NICHOLAS-APPLEGATE

For Nicholas-Applegate Capital Management, it won’t be growth — growth investing, that is — at any price.

Last month, the San Diego-based growth shop charged up its fledgling effort to diversify into value investing when it hired three portfolio managers from Smith Barney Capital Management, who together managed about $3.1 billion in institutional assets for the division of Travelers Group Inc.

The three former managing directors — Edmund W. Keeley Jr., 60, Philip J. Miller, 54, and Victor J. Raskin, 53 — are working out of Nicholas-Applegate Capital Management’s New York office, which opened last spring.

A Smith Barney spokeswoman says “we wish them the best,” adding that a search for replacements is under way. The three were part of an eight-member team.

The hiring is one of a number of changes that have taken place at Nicholas-Applegate, which hit a bump in the road after a successful bull market ride.

The 14-year-old company, which manages $32 billion in assets, experienced rapid growth until a couple years ago when sales leveled off.

Performance, too, has been a mixed bag. Although its momentum-oriented approach has worked smashingly in the international arena, most of its domestic mutual funds have lagged their peers, says Christine Benz, an analyst for Morningstar Inc. in Chicago.

Its $452 million mid-cap growth fund, for instance, returned 10.5% and 14.18% for the year-to-date and 1-year periods ended July 24, respectively. The average return for its peers during the same periods was 12.09% and 13.91%.

The firm has also undergone an internal shakeup. Three of its partners left during the past year, including its former chief financial officer, Thomas Pindelski, who joined First Union Corp. in June.

Nicholas-Applegate, a limited partnership, is mainly an institutional shop. It has $2.4 billion in its five-year-old load fund family, ranking 141st among 609 fund houses. Year-to-date sales for the funds through June 30 were $32 million, down 65% from the prior-year period, according to Boston-based Financial Research Corp.

“Nicholas-Applegate is a firm that has grown very fast and in doing so had some cultural changes,” says Michael Castine, who heads the investment management practice at New York-based executive recruiting firm Highland Search Group. “After several years of building, it’s not the same firm that people had joined, and some decided to move on.”

Like other well-known growth managers, Nicholas-Applegate has sought to round out its offerings to satisfy investors who crave one-stop shopping and tide it over during periods when growth investing falls out of favor. Indeed, company officials say sales have picked up lately, led by new offerings, including its top-performing, large-cap value fund run out of San Diego.

Nicholas-Applegate has “had some rocky times in recent markets,” says Burton Greenwald, a Philadelphia-based financial services consultant.

“Although they are known as growth managers, they are trying to get out from the stigma of being associated with one style of investing and want to broaden their appeal,” he adds.

Mr. Keeley, Mr. Miller and Mr. Raskin now manage institutional money but will also run a retail large-cap value fund slated to be launched this year. Their fund will take a traditional approach while the firm’s existing large-cap value fund is quantitatively oriented.

Their Smith Barney large-cap value approach gained 20.7% in the one-year period, and an average annual 28.1% and 21.4% in the three and five years respectively, ended June 30. It lagged the Standard & Poor’s 500 stock index’s 30.2% return over one-and three-year periods and 23.1% over five years.

It also lagged the 23% one-year return of the median institutional large-cap value manager tracked by the Pensions & Investments Performance Evaluation Report. But over three and five years, Smith Barney beat the median return, which was 26.3% and 20.9%, respectively.

Other boutiques that recently have expanded beyond their bread-and-butter investment style include New York-based value shop Neuberger & Berman, and Pilgrim Baxter & Associates, a Wayne, Pa., growth manager.

Mr. Keeley, Mr. Miller and Mr. Raskin say they were impressed with the resources the firm has pumped into technology and research, marketing and client services.

Although some partners have headed for the exits, Nicholas-Applegate also has been hiring aggressively. In June, it hired John McDonnell, the chief financial officer of American Express Co.’s Travel Related Services division, as chief operating officer. Mr. McDonnell is serving as chief financial officer as well.

“It is an opportunity for the three of us to build a value equity business from scratch,” says Mr. Keeley.

“We were with a firm that developed over time a number of different priorities,” he adds. “Nicholas-Applegate doesn’t do anything but manage money.”