Piedmont’s outstanding performance and diligent client service caught the attention of several major public plans last year. The California Public Employees Retirement System purchased a minority stake in Piedmont in February 2007 through its Manager Development Program and awarded Piedmont a $100 million enhanced-index mandate. Of the Durham, N.C., firm’s $2 billion in assets as of Dec. 31, $1.46 billion was managed on behalf of public pension plans. This was up from $872 million in 2006 and $473 million in 2005.
Last year Piedmont achieved the best performance in its history. Its large-cap Strategic Core portfolio returned 13.22%, compared to 5.49% for the Standard & Poor’s 500 Index. Piedmont endeavors to deliver alpha through stock and not sector selection. It picks two or three companies in each sector that are most leveraged into trends. Consumer discretionary stocks within the S&P 500 fell -13% as a group last year, whereas Piedmont’s consumer discretionary holdings were up 12%. By examining companies’ profits, Piedmont saw that the economy was slowing. It owned McDonald’s and Nike, which sell fairly cheap products that people don’t stop buying during a recession.
Piedmont’s tech holdings were up 30% last year, compared to 16% for tech within the S&P 500. Overall, semi-conductors had a bad 2007. Piedmont bought MEMC Electronic Materials, which manufactures polysilicon wafers—the raw material for semi-conductors and solar power. CIO Isaac Green described the company as “a back door play for alternative energy.” Another holding, Invidia USA, makes graphic processor chips and enjoyed the robust market for computer games. Finally, Apple was “heroically strong last year” on the back of its Leopard software and other innovations, Green said. “We understood the market, pushed the right stocks and knocked the cover off the ball.”
Piedmont takes a core approach, allowing it to switch between whichever style it expects to perform best. To strengthen its infrastructure, Piedmont hired its first cfo and comptroller last year, Toni Lipscomb and Marion White.
Green said he wants clients to get to know Piedmont’s staff to “build a knowledge-based relationship of trust.” A large part of the firm’s growth last year came from incumbent clients enlarging their mandates. New clients in 2006 and 2007, on both the equity and fixed-income sides, include the Illinois Teachers Retirement System, Ohio Public Employees Retirement System, Los Angeles City Employees Retirement System, Illinois Municipal Retirement Fund and the Chicago Teachers Pension Fund.