PUTTING DOWN ROOTS IN PARIS: ACORN AIMS TO BE EUROPEAN OAK

Facing a dry spell in its small-cap specialty, Wanger Asset Management LP has joined the ranks of U.S. money managers looking to Europe for growth.

Last week, the Chicago mutual fund company, which runs the $6.4 billion Acorn no-load group, announced that it has begun managing a new U.S. small- to mid-capitalization fund for Banque du Louvre, a Parisian private bank that provides mutlimanager investments to wealthy individuals and institutions.

The alliance with the bank, which has $5 billion under management, is part of a continuing effort by Wanger to establish a foothold in Europe, which is fast becoming an “equity culture,” says Ralph Wanger, founder and chairman.

In 1997, Wanger launched two Dublin-based funds — the U.S. Smaller Companies Fund and the European Smaller Companies Fund — which are sold through a British brokerage unit of Germany’s West Deutsche Landesbank.

The funds were ranked No. 1 with 30.17% and 25.75% returns respectively by Standard & Poor’s Micropal for the period from inception through yearend 1998, but sales have been slow. Currently, the two manage a combined $42 million.

With the Banque du Louvre deal, Mr. Wanger plans to sell through financial advisers in Europe, rather than to go after “costly and more volatile retail assets” by direct marketing as Acorn does domestically. .

Recently, Mr. Wanger says, the firm has been hit with “modest” redemptions he attributes to the prolonged downturn in the U.S. small-cap market.

Despite beating its peers by a wide margin, the company’s flagship $3.2 billion Acorn Fund suffered outflows of $277 million last year, according to Boston-based Financial Research Corp. It gained 6.02% last year, vs. minus 0.36% for its small-cap peers, according to Lipper Inc. of New York.

“It is becoming increasingly difficult for direct marketers to grow their asset base,” says Dave W. Haywood, director of research for FRC. “Their sales can be quite volatile because there isn’t much hand-holding involved. The mid-tier players are going to be acquired by the larger players and what will be left over are these niche players, like Wanger.”

The Banque du Louvre fund, called the New America Small Caps fund, follows the same investment strategy as Acorn, but is invested entirely in U.S. stocks. Mr. Wanger leads the team running it.

40% invested abroad

Europe, he says, is a logical step for his firm because it already has “a vigorous international effort.” About 40% of Acorn’s assets, roughly $2 billion, is invested in non-U.S. holdings, he notes.

“Many Europeans appreciate that the valuation spread is extreme here,” says Mr. Wanger. “A long-term investor would be quite well advised to look at small-caps. If you always did what works best over the last three years, you would be whipsawed time after time.”

The company is in the early stages of discussions with other possible European partners and sellers. It is also evaluating steps to broaden the distribution of its Dublin funds.

Thierry Callault, director of global strategy, says Banque du Louvre evaluated a number of U.S. small-cap managers, including New York-based Baron Capital Management, and picked Wanger because of the “constancy” of its approach. The new fund is its first U.S. small-cap offering.

Mr. Callault says Banque du Louvre has no plans to acquire any of its subadvisers, but Mr. Wanger won’t rule out the possibility of someday selling his firm to a larger partner.

“No such negotiations have been held,” he says. “A lot of things can happen down the road, but there is no plan to do so at this point.”