LONDON - In a surprising move, INVESCO Group Ltd. has agreed to purchase Bankers Trust Co.'s international structured products business for up to œ600,000 ($900,000).
The Bankers Trust Investment Management Ltd. unit runs œ1.2 billion ($1.8 billion) in indexed and tactical asset allocation accounts. The entire team of four portfolio managers, led by director Martin Harrison, and seven support staff have transferred to INVESCO.
The move marks a significant departure for INVESCO, which largely is known for its traditional asset management business. The sale also renews concerns about U.S. money managers' commitment to the U.K. market.
London-based INVESCO Group Ltd. has about œ9 billion under management, of which œ2 billion represents pension assets. Worldwide, parent company INVESCO PLC has œ45 billion ($67 billion) in assets under management.
"In the European marketplace, we've been seeking ways to build our business. We believe the acquisition of the BTI team enhances our range of products," said Adam Cooke, director.
Numerous industry observers expressed surprise INVESCO would purchase Bankers' U.K. indexed management business. Some questioned whether the highly quantitative approach was a good fit for INVESCO, although the company has an active quantitative unit in Boston.
But Anthea Nugent, head of manager search at consultant William M. Mercer Ltd., London, said: "We think it's a good deal for both sides." The deal keeps together an excellent team, "puts the American stamp firmly on" INVESCO's London operation, and enables Bankers to pursue its new business objectives, she said.
For Bankers, the sale marks the bank's second retreat from the U.K. pension business. In 1991, the bank abruptly terminated its U.K. balanced management business, with about œ1 billion under management. The action left a bitter taste in the mouths of British pension experts.
Since last fall, the bank has reorganized its investment management operation as part of a new emphasis on active management and derivatives products. As a result, it pulled back its active international equity team to New York, resulting in the termination of 40 positions in the London office (, Feb. 7).
While experts agreed Bankers handled the sale to INVESCO better than the 1991 withdrawal, many feel the New York-based bank had deserted the U.K. market. A spokeswoman for Bankers denied that, saying British funds would be served by its marketing and client services staff in London.
Some industry experts also worried the sale would reinforce British impressions that U.S. managers are not committed to the U.K. market and would make it yet tougher to obtain hard-to-win pension business here.
The small price also garnered industry notice. Assuming an average fee of 10 basis points, the business would have generated œ1.2 million ($1.8 million) a year in revenue - or just twice the maximum amount INVESCO will pay for the unit.
But compensation for 11 employees easily could eat up half of that amount, plus there still would be overhead and amortization costs, said one source, who questioned whether INVESCO was buying a high-cost, low-margin product. To generate healthy profits, indexed products - especially those run in separate accounts - require sufficient size, which Bankers never achieved in the United Kingdom. The U.K. structured investment business is just 1% of Bankers Trust's $180 billion in assets under management worldwide, and only 2% of its indexed business.
Under the terms of the agreement, INVESCO will pay up to œ600,000, part of which will be paid upon completion of the deal, reflecting the half of assets managed in pooled accounts. The balance, which will be based on segregated portfolios, will be paid in 12 months and will hinge on how much of that business is retained by INVESCO, Mr. Cooke explained.
Bankers' U.K. indexed business had 14 clients - 12 pension funds and two institutional taxable funds. About 80% of the assets were from the United Kingdom, with the rest from the Continent.
INVESCO has been reorganizing its global business under new Chairman Charles Brady, creating semi-autonomous holding companies for North America, Europe and the Pacific. Profits for the first half of 1993 totaled œ17.1 million, up from a loss of œ3.4 million for the same period in 1992.
Revenue, meanwhile, grew 20% to œ2.21 billion, from œ1.84 billion.
In North America, the investment management company has diversified into mutual funds, GIC management, real estate and defined contribution plans.
The European operation, though, has had problems. In June 1993, the company admitted guilt to 55 breaches of investment rules and agreed to pay the Investment Management Regulatory Organisation a record fine of œ750,000 plus œ1.6 million in related costs.
While consultants say INVESCO's operation now is clean, Mr. Cooke admitted the taint could continue to hamper the manager's marketing ability. He said INVESCO executives believe they have put the regulatory and litigation issues behind them.
