PEOPLE / PATRICIA FALKOWSKI: UAM’S LOSS IS ALLEGHANY’S GAIN

It was just last March that Chicago fund researcher Morningstar Inc. named Patricia Falkowski’s UAM FMA Small Company Portfolio to its list of “great but forgotten” funds, but investors — and competitors — have taken notice.

Earlier this month, Alleghany Corp.’s Chicago-based Alleghany Asset Management unit (assets: $30 billion) plucked Ms. Falkowski from Fiduciary Management Associates Inc. (assets: $1.9 billion) to run a new small-cap portfolio for institutional customers, and launch a mutual fund patterned after the top-performing small company fund she ran for her former employer.

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A onetime Securities and Exchange Commission regulator, Ms. Falkowski, 51, found her way into the money management business as a bank stock analyst in the early 1980s at Chicago’s Kemper Financial Cos. (now part of Scudder Kemper Investments Inc.). She left Kemper in 1989, and after a two-year stint as an independent consultant specializing in small companies with undervalued stock, joined Fiduciary Management in October 1991. She took over the company’s year-old Small Company Portfolio mutual fund nine months later, and has compiled a strong — albeit largely unnoticed — investment record.

“Not only does she understand companies, stocks and the investment business, but she is a real student of history,” says Tracy McCormick Chester, manager of the Scudder Kemper Blue Chip and Technology funds. “When something happens in the world she can immediately think out several implications.”

For the five years through July, the FMA Small Company fund earned an average 17.8% annually, vs. 13.8% for the Russell 2000 Index, ranking 16th among the 87 small-cap value funds tracked by Morningstar over the period.

Those results helped attract a trail of admirers — and new money –into the fund. Since last October, the fund’s assets have swelled to more than $200 million from $37 million, fueled by an estimated $172 million in net new sales, according to Financial Research Corp. in Boston.

Fiduciary Management co-founder Philip Arnold has returned to serve as interim chief investment officer while the company searches for a permanent replacement for Ms. Falkowski, who assumed her new job last week. Her departure is the latest in a series of recent blows to United Asset Management Corp., the Boston-based money management conglomerate which has owned Fiduciary Management since 1986. (See related story on Page 17.)

In moving to Alleghany, Ms. Falkowski will narrow her focus to her primary interest: small-cap stocks. In addition to serving as president and chief investment officer at Fiduciary Management, she and two analysts managed a broad mix of portfolios — from large-cap growth and large-cap value to low turnover and even a chameleonlike style-tilt portfolio. “Though it was a team approach, it was difficult to execute all those styles well,” she says.

At Alleghany’s Chicago Trust Co. subsidiary, Ms. Falkowski expects to lead an expanded team of five analysts. Alleghany filed a registration with the SEC this month to launch the Alleghany Chicago Trust Smallcap Value Fund. Alleghany executives hope to receive approval in time to kick off the fund during Charles Schwab Corp.’s early-November fund supermarket conference in Orlando, Fla.