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The Washington Post

 

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Seeking Companies Poised for Recovery
Nuveen NWQ Has Placed a Big Bet on Computer Associates' Revitalization

By Matthew Keenan
Bloomberg News
Sunday, February 20, 2005; Page F04

Jon Bosse is betting that John Swainson will rebuild Computer Associates International Inc., the world's fifth-biggest software company, after a two-year fraud investigation.

Bosse bought 4.5 million shares of Computer Associates in December for accounts including the Nuveen NWQ Multi-Cap Value Fund, which he manages.

He made the purchases one month after the company named Swainson, a 26-year veteran of International Business Machines Corp., chief executive.

Swainson and his executive team are "going to be much more disciplined" than the company's past leaders, Bosse, 46, said in a telephone interview from his office in Los Angeles. "You have a new level of sophistication in management."

After the purchases, Computer Associates became the $284 million fund's top holding, at 5.1 percent of assets. Bosse met with Swainson on Feb. 9, his first day on the job at the Islandia, N.Y.-based company.

Nuveen NWQ has risen by an annual average of 35 percent in the past two years, ranking seventh of 89 funds in its category, according to data compiled by Bloomberg.

A version of the fund for institutional investors has climbed by an average of 17 percent annually during the past five years.

NWQ Investment Management Co., where Bosse serves as chief investment officer, is the fund's sub-adviser. The firm has been a unit of Nuveen Investments for the past three years, and its $30.9 billion under management equals about one-quarter of Nuveen's assets.

Bosse's fund has a larger share of assets invested in Computer Associates than any other mutual fund, according to statistics compiled by Morningstar Inc., the Chicago fund research firm.

The Royce Value Plus Fund, the best-performing multi-cap value fund during the past two years, doesn't own any shares of Computer Associates, according to Royce's Web site. The fund has surged an annual average of 52 percent over two years.

NWQ manages money mainly for corporations and foundations. While the company has closed its multi-cap value portfolios for institutions and wealthy individuals, it plans to keep Bosse's fund open for the average investor.

"They've been a real driver" for Nuveen, said Rachel Barnard, an equity analyst for Morningstar. "Value has been in vogue. They've also had some good performance."

While the Chicago-based parent company is best known for its municipal bond funds, stock funds accounted for 70 percent of its net new investments last year.

Bosse joined NWQ in 1996 after spending 10 years at Arco Investment Management Co., where he worked in equity research and money management.

He received a bachelor's degree in economics from Washington University in St. Louis and a master's in business administration from Wharton School of the University of Pennsylvania.

Nuveen NWQ Multi-Cap's other holdings include Viacom Inc., the third-biggest U.S. media company; IndyMac Bancorp Inc., the largest savings and loan in Los Angeles; and Kerr-McGee Corp., an oil company that last year made the biggest acquisition in its history.

To find the fund's 40 to 50 holdings, Bosse and a dozen analysts search for battered companies with strong cash flow.

The team uses quantitative analysis and qualitative methods, such as meetings with executives, to narrow the list, and then assesses its confidence in a company's ability to change.

"It's not an A-to-Z screening process," Bosse said.

Often, competing fund managers believe a stock "has to start doing well before you buy it," he said. "Our view is that if you wait until things start doing well, you miss 80 percent" of the potential gain.

Shares of Computer Associates have dropped 2.2 percent since the start of last year after more than doubling in 2003. The stock closed Friday at $26.77.

Accusations by the Justice Department that the company improperly booked $2.25 billion in sales led to the indictment of former chief executive Sanjay Kumar, the ouster of 15 executives and a $225 million fine.

Computer Associates installed Swainson, 50, as chief executive two months ahead of schedule. He replaced Kenneth Cron, who was appointed interim chief executive after Kumar was demoted to chief software architect.

The company is poised to win new business in database management and systems and security as Swainson gets help from newly hired executives from Compaq Computer Corp. and Dell Inc., Bosse said. He expects the firm to increase cash flow this year.

As recently as 2000, Computer Associates signed contracts for as long as five years that booked all the revenue up front and recorded costs as they occurred, Bosse said.

Revenue will more closely reflect cash intake within 12 months to 18 months as the agreements expire and are replaced, he said.

"We see a company that we think there's a tremendous amount of change in," he said. "This company is materially undervalued, materially misunderstood."

2005 The Washington Post Company

 

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