Equity Composite Presentation: SMid-Cap

Daruma Capital Management, LLC is an independent investment advisor registered under the Investment Advisors Act of 1940. In April 2012 Daruma succeeded to the business of Daruma Asset Management, Inc., which was established in April 1995 by Mariko O. Gordon, CFA, Founder, CEO and CIO, and until March 1998 was known as CastleRock Capital Management, Inc. Daruma is located in New York City and provides investment management services to public and corporate pension funds, endowments, foundations and other nonprofit organizations, family offices, and individuals.

The investment strategy of Daruma’s SMid-Cap Equity composite emphasizes long-term growth by buying companies at a value price with accelerating earnings. Daruma manages a concentrated portfolio of typically no less than 25 and no more than 35 stocks, and primarily invests in companies with a market capitalization of up to $10 billion at purchase. The benchmark that best reflects the composite’s investment style is the Russell 2500 Index (the “Index”). The Russell 2500 Index measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as “smid” cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2500 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2500 Index is constructed to provide a comprehensive and unbiased barometer for the small to mid-cap segment. The Index is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small to mid-cap opportunity set.

The gross performance results of Daruma’s SMid-Cap Equity composite are presented after all trading commissions but before management and custodial fees. Net-of-fees composite results are calculated by subtracting the management fees paid, but do not include custodial fees paid by clients. A client’s return will be reduced by all expenses incurred in managing the account. The fee schedule for separately managed accounts is 1.00% per annum of the assets under management, payable quarterly in arrears. Fees may be negotiable for certain larger or strategic investors. The fee schedule for the commingled fund is typically 1% per annum of the assets under management, payable monthly in advance. Alternatively, investors in the commingled fund can pay a reduced fixed fee of 75 basis points of assets under management, payable monthly in advance, plus 10% of the excess return over the Index, payable annually.

Past performance does not guarantee future results, and there is the possibility of loss of value. Changes in markets, interest and exchange rates, economic and/or political conditions, as well as other factors, may influence future performance. Investment results are time-weighted performance calculations representing monthly total return. In other words, the performance period is monthly. All realized and unrealized gains and losses as well as all dividends and interest from investments and cash balances are included. Investment transactions are accounted for on a trade date basis. Composite valuations and returns are calculated and stated in U.S. dollars. The dispersion of annual returns is measured by the standard deviation across asset weighted portfolio returns represented within the composite for the full year. Additional information regarding Daruma’s policies for calculating and reporting returns, valuing portfolios, calculating performance, and preparing compliant presentations is available upon request.

On 4/01/11, Daruma implemented a $400,000 minimum account size for an account to be included in the SMid-Cap Equity composite. Prior to 4/01/11, there was no minimum account size requirement. Also, effective 4/01/11, all of the firm’s discretionary fee-paying clients using its SMid-Cap Equity strategy were included in the composite, except for any new accounts that have not yet entered the composite. Prior to 4/01/11, both fee paying and non-fee paying discretionary accounts using the firm’s SMid-Cap Equity strategy were included in the composite. Daruma’s SMid-Cap Equity composite was created in April 2010. A list of composite descriptions is available upon request.

SMid-Cap Equity Composite

Since Inception through December 31, 2013

Period Total Gross Return
Total Net Return
Russell 2500 Return
Number of Portfolios Dispersion
Total Composite Assets
($ millions)
Total Firm Assets
($ millions)
2013 43.25 41.98 36.80 5 0.05 143.1 2556
2012 14.20 13.19 17.88 5 0.06 101.4 1752
2011 -16.69 -17.37 -2.51 8 NA 94.4 1626
2010* 17.82 17.59 10.77 6 NA 10.9 1805

* Since Inception April 30, 2010 through December 31, 2010.

Dispersion is not reportable until composite holds more than five portfolios for the entire reporting period.

Daruma Capital Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Daruma Capital Management, LLC has been independently verified for the period of July 28, 1995 to December 31, 2013.

The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

For the year 2010, Daruma managed 17 non-fee paying accounts.

The three-year annualized standard deviation for the year ended 2013 for the SMid-cap Equity Composite and the Russell 2500 are 5.6 and 4.5, respectively. For 2011 and 2012, the composite did not yet have three years of performance, so no three-year annualized deviation is reported. Previous versions of Daruma’s SMid-Cap Equity Composite Presentation showed 3-year standard deviations rather than 3-year annualized standard deviation for both the composite and the benchmark. In this presentation, the numbers have been changed to their annualized equivalent.