For PanAgora, particularly well-known for its tactical asset allocation and indexed products, the defections are a blow. The moves follow other personnel changes in its Boston operation.
For State Street, the addition of Alan Brown, PanAgora's London investment chief and managing director, along with his team, will provide a major boost to the firm's U.K. and continental European operations.
The shifts occurred in London, although the firms also are cross-town rivals in Boston, where State Street is based.
Nicholas A. Lopardo, chairman of State Street Global Advisors, said the team "will help us to develop further our capabilities in the asset allocation, currency and international fixed-income areas, and to market State Street more strongly in the competitive U.K. and European markets."
The London operation runs $3 billion of SSGA's $150 billion in assets, mostly in indexed strategies.
As of mid-January, Mr. Brown will become managing director of State Street's London unit. He replaces David J. Miller, who resigned in October to become chief executive of Natwest Wheelock Ltd., a new merchant bank based in Hong Kong.
Also leaving PanAgora for State Street are: Paul Duncombe, senior investment manager-currency and fixed income; Malcolm Leigh, senior investment manager-currency and international fixed income; Lucinda Record, investment manager-currency management and trading, international fixed income; and Heather Benson, director of sales and marketing.
Mr. Brown is considered a leading figure in European quantitative investment circles and was closely identified with PanAgora in London. Sources said he has a rare quality of being able to explain complex investment processes in simple language.
Mr. Brown, together with Ms. Benson, State Street's new top marketer, should help the firm better penetrate the difficult U.K. pension market, said Peter Stonberg, State Street's chief investment officer.
The addition of the new team is expected to complement State Street's U.K. quantitative equity team, which had been hired away from Hill Samuel Investment Management, London in October 1992.
The combined team "will make for a real quantitative powerhouse," said one competitor.
For PanAgora, the loss is bad news. One unidentified U.K. pension fund dropped the firm from a short list for a global tactical asset allocation mandate because of the personnel change.
PanAgora's London operation manages $3 billion of a total of $15 billion in assets.
Mr. Brown served as both managing director - the equivalent of chief executive - and chief investment officer at PanAgora, which he helped found in 1989.
Tsutomu Furuta, who represents PanAgora's half-owner, Nippon Life Insurance Co., has been named chief executive of the London unit. Lehman Brothers Inc. owns the remaining 50% interest.
Clive Lang, senior investment manager who has assumed Mr. Brown's investment responsibilities, said while the losses are significant, PanAgora's systematic quantitative approach means the firm is not tied to any particular individual and servicing of current clients will not be affected.
"The bulk of the assets in London tend to be asset allocation mandates, of which I am the lead manager," Mr. Lang said.
Clients confirmed that view. "They're dealing with the remit very well," said Joanne Hope, investment assistant at the 550 million ($860 million) Grampion Regional Council Superannuation Fund, Aberdeen, Scotland. The fund hired PanAgora in July 1993
to handle a 180 million global tactical asset allocation program.
"We've been very happy with how they've managed the assets," said John Thompson, director-financial operations for Honeywell Ltd. Pension Fund, Bracknell, England. PanAgora runs a passive rebalancing program for the entire fund plus a 50 million tactical asset allocation portfolio.
But not everyone is content. The $7.1 billion Massachusetts State Teachers' & Employees' Retirement System, Boston, which has $450 million managed by PanAgora in domestic bond and international equity strategies, is "reviewing the situation," a spokesman said.
Both Mr. Lang and Bruce Clarke, PanAgora's Boston-based president, said the Boston and London offices will be working more closely in the future. Mr. Lang said the firm will recruit to fill any personnel gaps.
Industry experts said recruitment will be important, because the defections leave Mr. Lang as one of two senior investment professionals in the London unit. After the departures, the London operation will have 28 staffers, Mr. Lang said. The Boston operation, which includes the firm's research and development team, is about twice that size.
PanAgora has weathered a series of organizational changes in recent years.
Structured as a joint venture between then-Shearson Lehman Brothers and Shearson's key shareholder, Nippon Life, PanAgora began life in 1989 as a startup operation in London. A year later, The Boston Co.'s structured investment products division, specializing in indexed, tactical asset allocation and other quantitative strategies, was added.
Outsiders say the new firm was excessively staffed, especially in London, given its existing book of business. They said the firm had lavish offices, and computer systems needed to run its quantitative strategies were expensive.
Mr. Clarke declined to reveal the firm's profitability but said a large staff was hired to create an immediate presence. He denied that PanAgora's offices are "lavish."
John Snow, PanAgora's chief executive until his departure in April, said each unit was structured to be a self-sufficient investment operation - international equity investment was concentrated in Boston while bonds and currency management were centered in London, he said.
The Boston and London operations increasingly cross-marketed each others' products and shared investment expertise over time, sources said.
But this structure raised questions in outsiders' minds as to who was in charge.
Corporate changes also affected PanAgora. American Express Co. - which had acquired 100% of Shearson Lehman Holdings in 1990 - later decided to sell Shearson's retail brokerage operation to Primerica Inc. For PanAgora, this meant the loss of Shearson's distribution network.
The subsequent spinoff of Lehman Brothers in 1993 into a publicly traded unit inflicted a wave of belt-tightening moves on PanAgora. Industry sources said Mr. Snow was pushed out the following winter; Mr. Snow said he was barred by contract from discussing the terms of his departure.
Also, several other portfolio managers and its top marketer have left the firm in the past year, although most senior managers have remained.
Another key change came in October, when Richard Crowell, the firm's president and chief investment officer, shed his administrative duties because of health reasons. He was named vice chairman, serves on the firm's investment committee and contributes to product development on a part-time basis.
Mr. Clarke was named president, moving up from director of global investments. Jarrod Wilcox, formerly director of international investments at Batterymarch Financial Management, succeeded him.
But Mr. Snow's departure and Mr. Crowell's illness left Mr. Brown as the only surviving member of the firm's original management committee. Mr. Brown and Mr. Snow were known to have a close working relationship.
The departure of the five U.K. professionals probably will impair PanAgora's marketing ability until the waters have settled.
In the meantime, Mr. Clarke said PanAgora has a strong track record, particularly with its asset allocation products. He said new business last year increased revenue by more than 25%, and he expects very strong prospects for growth in international and global mandates managed in both cities for 1995.
"We are a company with two offices with a large number of people with senior investment experience," he said. When a pension fund is hiring PanAgora, it's not just buying the portfolio manager but the firm's entire resources, he said.