LONDON - Plagued by poor performance and tainted by the Maxwell scandal and regulatory investigations, INVESCO Asset Management Ltd. has seen its U.K. pension business drop more than 50% since the end of 1988.
Pension accounts dropped to 76 at the end of 1993 from a peak of 149, while pension assets under management plunged 58% to 1.4 billion.
The question is, can Charles Brady, chairman of parent company INVESCO PLC, and Norman Riddell, chief executive of the firm's European operation, turn the firm around?
Since becoming chairman last year, Mr. Brady has swept a new broom through INVESCO Asset Management, which manages some 7.1 billion ($11 billion), 15.6% of the parent company's 45.3 billion under management at the end of 1993.
(In comparison, INVESCO's U.S. operations managed $53.8 billion at the end of 1993. The firm is the second-largest independent manager of U.S. tax-exempt assets, with $37 billion under management.)
Lord Stevens of Ludgate, the former chairman of the London-based firm, has stepped down, and so have many senior managers considered loyal to him and to Nicholas Johnson, the former chief executive. In total, 22 senior professionals and up to 30 junior managers have left the firm.
Mr. Riddell, formerly chief executive of Capital House Investment Management Ltd., the London-based money management arm of the Royal Bank of Scotland, replaced Mr. Johnson. It is the task of Mr. Riddell and Jeffrey Attfield, the managing director of INVESCO Asset Management, to revamp the U.K. operation. Neither executive was available for comment.
"It's going to be a long slog," said one consultant, who asked not to be named.
Troubled history
The London operation has a long, troubled history, including links with the late media baron Robert Maxwell.
Originally the money management arm of merchant banker Samuel Montagu, the firm went through a series of twists and turns in the 1980s.
In 1982, London-based Midland Bank sold a 40% interest in Montagu to Aetna Life and Casualty, Hartford, Conn. Three years later, the bank repurchased the 40% stake for 97.8 million but sold Montagu Investment Management (renamed MIM) to Aetna for 45 million.
In late 1985, Guinness Peat made a takeover bid for Britannia Arrow Holdings, a London-based unit trust business with about 4 billion under management. But Mr. Maxwell and MIM units boosted their combined holdings to 30% of Britannia's stock, resisting the bid. Financial observers questioned whether Messrs. Maxwell and Stevens - who, as chairman of United Newspapers PLC, also is a media tycoon - sought to merge MIM's institutional money management business with Britannia's individual business.
By March 1986, the result was clear: Britannia agreed to pay 45 million to buy MIM from Aetna (which retained MIM's Tokyo office). Mr. Stevens became executive chairman and emerged as the dominant player of the combined firm.
Later, he rebutted criticisms that he used client money to further MIM's corporate objectives.
Purchase of INVESCO
Seeking to diversify into the United States, Britannia bought a 45% stake in INVESCO Capital Management Inc., Atlanta, for 47 million ($67.5 million) in November 1986. The move also suited INVESCO executives, who wanted to add international capability to the firm's successful domestic investment management business, which then had $9.5 billion in assets under management.
Britannia already had two other U.S. units: Gardner and Preston Moss, Boston, and Financial Programs, Denver, with a combined $5 billion in assets under management. (Those firms since have been renamed INVESCO Management & Research and INVESCO Funds Group, respectively.)
The fit between both value-oriented firms appeared to work well. In November 1988, Britannia bought the rest of INVESCO for 75 million ($133 million). Reflecting the increasing globalization of its business, the firm's name was changed to INVESCO MIM in early 1990.
But problems started to emerge in the late 1980s. Efforts to apply INVESCO's more quantitative investment techniques to the U.K. equities market "failed dismally," said one former employee. Adam Cooke, an INVESCO director, said databases that made the process work in the United States were not available in the United Kingdom.
In addition, INVESCO MIM was too heavily invested in stocks going into the 1990 U.S. invasion of Kuwait, which hurt performance. The firm's U.K. balanced portfolios fell 14.5%, compared with 10.9% for weighted average of The WM Co. universe. The firm experienced a net loss of one U.K. pension client, to 148, but assets under management declined 21%, to 2.66 billion from 3.37 billion.
Maxwell's death
Mr. Maxwell's death in December 1991 opened the lid of Pandora's box. As one of the money managers for the Maxwell-controlled Mirror Group Newspapers Pension Scheme, INVESCO MIM subsequently was sued by the trustees for improperly transferring pension fund-owned securities to the media baron before his death.
An investigation by the Investment Management Regulatory Organisation into this and other matters cast a further shadow over INVESCO's U.K. operations.
Plus, an INVESCO-managed trust, Drayton Consolidated Investment Trust, revealed in early 1992 that 11% of its portfolio - some 19.8 million - was lost. Its biggest investment, in an unquoted Scottish confectionery company called Alma, had collapsed.
Ultimately, INVESCO paid 9.5 million to cover losses and buy stocks from the trust, which was liquidated.
(Investors ultimately received about 3 per share, against average initial investments of 3 to 5 per share - not bad for a higher-risk portfolio during a recession, Mr. Cooke said.)
Mr. Stevens, who since had been appointed to the House of Lords, was weakened, sources said. By early 1993, insiders said, it was apparent that new management would be installed.
Mr. Brady, an INVESCO founder, succeeded Lord Stevens in April and started cleaning house. Insiders said a desire to rid the firm of certain professionals tainted by the Maxwell scandal plus uncertainty from the changing of the guard led to the personnel turnover.
Mr. Brady moved quickly to settle the IMRO and Mirror Group charges. In May 1993, INVESCO MIM admitted 55 breaches of financial rules and agreed to pay a record fine of 750,000 plus 1.6 million in costs to the IMRO.
The breaches, involving several INVESCO units, included inadequate compliance and controls, mishandling of clients' money, unsuitable investments and failure to inform IMRO and trustees about the transferred Mirror Group pension assets. Besides paying the fines, INVESCO PLC also installed new controls and restructured the company into three semi-autonomous units with separate boards.
In January 1994, INVESCO (which dropped MIM from its name) settled the Mirror Group trustees' claim for 11 million.
Performance suffers
Meanwhile, performance continued to suffer, after rebounding in 1991. In 1992, INVESCO MIM returned 19.4% compared with 19.8% for the WM universe. Last year, the firm produced a 26.4% return, 220 basis points off the WM weighted average. Worse, the firm has underperformed the weighted average for all two-, three-, four- and five-year periods ended last year.
One former employee said, "The real problem is, if you have a business that grows by acquisition and the team changes dramatically, it's very difficult to build performance."
Added another ex-employee: "The eye goes off the investment ball."
Client defections became precipitous. The firm had a net loss of 21 clients in 1991, 33 in 1992, and 15 in 1993, dropping to 76 U.K. clients with actively managed separate accounts, according to consultant Hymans Robertson, Glasgow, Scotland.
Clients continue to terminate the manager. The 365 million Tarmac Staff Pension Scheme, Wolverhampton, England, recently dropped INVESCO for a 143 million balanced account because of poor performance, said James Mason, group pensions manager.
One consultant explained trustees want "the safe choice. They don't want to be caught out."
INVESCO's Mr. Cooke added the firm can convince clients that it is above board, but a firm can't reach the plan participants. "Now the perception is we are one of the squeakiest clean fund management operations around. We have one of the best sets of compliance procedures in the industry," and enjoy a good relationship with the IMRO, he said.
Mr. Cooke said INVESCO has revamped its U.K. balanced product. It has installed better risk controls that have buoyed U.K. equities returns so far this year.
INVESCO is a global investment manager, he emphasized, offering a range of low-risk products in the United States, Europe and Asia.
While its U.K. balanced product is not yet marketable, INVESCO has been building business on the Continent, particularly in Italy and France, and has just entered into a relationship with Argentaria Unidad de Fondos, one of Spain's biggest banks. INVESCO also has been a leader in Eastern Europe, with its $110 million Eastern Europe Development Fund.
In addition, cross-selling opportunities around the globe exist. INVESCO's London branch just won a $15 million global bond portfolio from an existing U.S. client of the Atlanta operation, and a $50 million emerging markets portfolio from a Korean institution, Mr. Cooke said.
And, the February purchase of Bankers Trust Co.'s U.K. structured investment business - with some 1.2 billion in assets - gives INVESCO a foothold in passive and active quantitative investment management (Pensions & Investments, March 7).
Still, some question whether Mr. Brady sacrificed the firm's reputation in agreeing to the IMRO charges. Mr. Cooke denied that: "I think the reputation of INVESCO today is improving steadily and strongly across the world."
