Jon Bosse is betting John Swainson will rebuild Computer Associates International, the world's fifth-biggest software company, after a two-year...
Jon Bosse is betting John Swainson will rebuild Computer Associates International, 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 IBM, as chief executive.
Swainson and his executive team are “going to be much more disciplined” than the company’s past leaders, Bosse said. “You have a new level of sophistication in management.”
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Computer Associates became the $284 million fund’s top holding, at 5.1 percent of assets, after the purchases.
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 17 percent annually during the past five years.
NWQ Investment Management, 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, a research firm based in Chicago.
Along with Computer Associates, Nuveen NWQ Multi-Cap invests in companies including Viacom, the third-biggest U.S. media company; IndyMac Bancorp, the largest savings and loan in Los Angeles; and Kerr-McGee, 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.
Often, competing fund managers think 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 dropped 2.2 percent since the start of last year through February after more than doubling in 2003.
Accusations by the U.S. Justice Department that Computer Associates improperly booked $2.25 billion in sales led to the indictment of former CEO Sanjay Kumar, the ouster of 15 executives and a $225 million fine.
Computer Associates is poised to win new business in database management and systems and security as Swainson gets help from newly hired executives from Compaq Computer and Dell, 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.”