Thursday, September 17, 2015

Timpani's strategy pays off in up, down markets

          September 17, 2015
When Brandon Nelson decided to leave Wells Capital Management and start his own money management firm, he felt confident about the new endeavor.  
Although it was the biggest career move of his life, Nelson, who was then 36, knew he had the experience, drive and right partners to make Timpani Capital Management LLC work.
What Nelson didn't know is that within six months, the U.S. would be plunging into the worst economic downturn since the Great Depression.
"The timing was not good," said Nelson, who is now 43.

Nelson, a McFarland native, began working at Strong Funds after participating in the Applied Securities Analysis Program and graduating with a master's degree in finance from the University of Wisconsin-Madison. He stayed through Wells' acquisition of Strong, reaching the rank of managing director and senior portfolio manager. But by 2008, Nelson had the entrepreneurial itch.
"The bottom line is I wanted to be at a firm where I could move the needle more," Nelson said.
So on April 1, 2008 he and his partners launched Milwaukee-based Timpani, which is named after a type of drum, said Nelson, who played a snare with the UW-Madison marching band.
Nelson's partners — a group of employees from Frontier Partners in Northbrook, Ill. — provided key operational support and $1 million of assets to manage. In August 2008, London-based Momentum Global Investment Management Ltd., gave Nelson more than $60 million to manage.
"He had a strong background and good experience, a clear philosophy and process, and a passion to succeed," said Andrew Smith, head of research at Momentum, which oversees about $4 billion of client assets.
Key to that philosophy iA month after Momentum put the money with Timpani, Lehman Brothers filed for bankruptcy. That year, the stock market lost 37%. Momentum stuck with Timpani, despite the turmoil and an initial loss caused by the market decline.
"We were confident that over a long period of time Brandon's philosophy had potential to beat the market," Smith said.
During the stock market decline, most investors preferred "safe, household names" to Timpani's small company growth asset class, Nelson said. But he continued seeking new clients.
"It was about grinding through and surviving," he said.
Timpani has more than survived. The firm has grown assets under management to $348.5 million at the end of June, Nelson said.
The firm's mutual fund — Frontier Timpani Small Cap Growth (FTSGX) or (FTSYX) —has provided an average annual return of 19.21% for the three years ending Wednesday, which ranks it in the top 2% of its category, according to Morningstar Inc.
"They have a good team that through the difficult times stuck with what they do best – fundamental analysis on stocks," said Eric Nohelty, a consultant at Alpha Investment Consulting Group in Milwaukee. "Brandon is one of the more thoughtful and insightful portfolio managers that we talk to."
Nelson says he and his investment team partners are so confident about Timpani that along with having personal investments in the fund, they decided to exercise an option to increase their stakes in the firm in August, bringing their combined ownership to 75%.
"We believe that's pretty telling of where we think our future lies," Nelson said.s a strategy Nelson says works in up and down markets. It involves a process that he says excels at finding big winners and protecting downside with a strict sell discipline.

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