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APRIL 25, 2005
From Mom And Pop To Megafund Can family biz Calamos keep Wall Street happy while boosting investor returns? When John P. Calamos Sr. started buying convertibles in the 1970s, most investors thought of cars, not bonds. Today companies issue more than $70 billion of such debt each year, and his firm, Calamos Asset Management Inc., puts more money into these hybrid securities than just about any other mutual-fund company. Calamos used that expertise to branch out into equities and then high-yield bonds. In fact, since the tech bubble burst, the firm's assets have expanded by an astounding 750%, to $38.2 billion. Returns have kept pace with the growth: All six of its mutual funds that are at least five years old rank in the top 25% of their category over that period. For all its success, though, this is a precarious time for Calamos. Late last year the 64-year-old money manager took his family-owned company public. That means he must serve two masters -- company shareholders and fund investors -- whose interests may not always be in sync. But his bigger challenge may be keeping up the firm's performance after years of tremendous growth. The initial public offering was a big success, raising $414 million. And the stock has soared 24%, to around $22 a share. The listing makes it easier for the Calamos family to pay any estate taxes and gives the company the money to help seed new products. The firm, which is building new headquarters outside Chicago, launched an international mutual fund this year, and is developing another hedge fund. Still, it has to avoid the pitfalls some listed fund companies have fallen into by rolling out trendy products to chase hot money, raising fees, or taking other actions to please Wall Street. "When someone goes public they're in business for their shareholders, which is antithetical to the fulfillment of their fiduciary duty," says John C. Bogle, founder of the Vanguard Group. "Calamos is going down a difficult road." Calamos says his firm won't lose sight of its roots. In fact, it's still a family business even though it trades on NASDAQ. The Calamos clan has more than $250 million invested with the firm, and owns 77% of the company. "The interests of fund investors and shareholders are very much aligned," he says. "You don't have to forsake one group for another." Public or not, it's much easier for a lean fund to shine than one that has put on weight. Calamos' largest offering, the $14.3 billion Calamos Growth Fund (CVGRX ), ranks in the top 1% of all mutual funds since 1995, with an annualized return of 23%. Much of the gains were made when the fund had less than $1 billion in assets. For the past year it's in the bottom half of its category. "Savvy stockpicking served them well, but can they keep it up as assets grow?" asks Kerry O'Boyle, an analyst with Morningstar Inc. The funds' high costs are also a drag: Their asset-weighted expenses average 1.55%, vs. 0.89% for the industry. The firm promises to avoid the trap of keeping funds open to new investors for too long. John Calamos' nephew, Chief Investment Officer Nick P. Calamos, says it will close a fund that's becoming too unwieldy. They've done this with two others: Calamos Convertible Fund and Calamos Market Neutral Fund (CVSIX ). FAMILY VALUES John Calamos got his first taste of investing as a teenager in the 1950s. His Greek immigrant parents' idea of saving was to squirrel away in a cigar box each silver dollar that passed over the counter of their Chicago grocery store. So it wasn't easy to persuade them to give him $5,000 to try his hand at the market. He bought a few growth stocks, with mixed results: Texas Instruments Inc. tripled in value, while Muntz TV went to zero. His parents, along with a dozen or so other relatives, were among his first clients when he set up shop in 1977. "Not losing your parents' money and not losing money for the people who trust you is paramount to investing," he says. If the firm ever loses sight of that maxim, the Calamos clan will likely have something to say about it.  By Adrienne Carter in Naperville, Ill. Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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