Golden Valley firm, which grew out of the old IDS, sees micro cap success

From the 1960s through the 1980s, Investors Diversified Services was the centerpiece of Minneapolis' financial services industry.

Portfolio managers who worked for IDS in the 70s and 80s and left to form their own boutique investment and wealth management firms like Next Century Growth Investors is one reason why Minneapolis has a diverse collection of small money management firms.

IDS itself became part of American Express Co. in 1984 and spun off as Ameriprise Financial in 2005.

Next Century, a boutique money management firm in Golden Valley, was started in 1999 by Thomas Press and the late Don Longlet after they had worked for IDS veteran, Jim Jundt.

Now the firm is seen as a top micro cap manager.

Press, 66, still runs the nine-employee firm as chairman and CEO. Five of the employees, including Press, are investment managers, investing primarily for pension and profit-sharing plans. They also have invested for state funds and endowments.

Press' plan was to retire at 70, but he said others in the firm are trying to convince him to stay until he is 75. Boutique firms often have a hard time with succession beyond their founders, but Press said there are plans to ensure the firm continues even as he steps aside.

That firm's strategy was based on finding high-quality growth stocks and the the laws of compounding while maintaining strong rules on when to sell investments or move them to other growth strategies.

"This is the only way I've ever managed money," Press said. "We have a very disciplined growth strategy, and we stick with it in good times and bad. And thankfully, we've outperformed in all of our products since inception."

Primarily investing in growth stocks, Press and his team have largely outperformed their benchmarks even as different growth stocks have gone in and out of favor during the past 20 years. Growth-style investing is used across the board, no matter the size of company, but the NCG team is known for its micro cap investing.

Pension & Investments recently named Next Century as a top micro cap manager over the last five years.

The micro cap business is run by Robert Scott, one of the earliest portfolio managers at the firm. Scott started in 2003 and, while he works on all portfolios, has specialized in the micro cap portfolio that has $515 million of the firm's $1.16 billion in overall assets. The small cap portfolio has $458 million in assets.

Active managers such as Next Century have lost ground over the years to investors putting money into low-cost passive investment strategies. Across their investing, NCG has consistently outperformed passive unmanaged indexes.

Press admits the firm has lost clients when growth stocks have been out of favor, but has remained committed and outpaced their benchmarks.

"We operate in a market that's inefficient, " Scott said. "If you come at it with a very seasoned team with a very specific strategy that they've been executing, over many years successfully, you should be able to do better than unmanaged indexes."

Those unmanaged indexes have to own everything while Scott typically holds 40 to 60 stocks in the micro cap portfolio. The most successful of those holdings often end up migrating to the small cap category.

In 2021 large cap stocks tended to do better than small cap stocks, but Scott is starting to see another shift that fits their disciplined thinking.