Edinburgh Fund Managers' 83.25 million (U.S. $128 million) purchase of Dunedin Fund Managers has boosted its position in the U.K. funds management business, but might not have helped it as much in the U.S. market.
Edinburgh Fund Managers, the smaller of the two firms, absorbs a company that has suffered the departure of key personnel in the past year followed by client losses in the U.S. market.
U.S. pension fund marketing and client retention will be a struggle for Edinburgh, many experts believe. Not only is Edinburgh not as well known in the United States as Dunedin, but Dunedin's momentum has been hurt by last year's turmoil.
Last week, Gloria Carlson, director of Edinburgh Fund Managers PLC North America, said officials of her firm were getting a "good reception" from remaining Dunedin clients they were visiting.
Dunedin has 15 remaining North American clients - of which 11 are pension funds or foundations - representing $1.4 billion in assets, and 10 U.K. pension funds. That's down from a peak of 28 Dunedin institutional accounts in North America representing about $3 billion of assets.
Officials of Edinburgh Fund Managers say much of their North American business consists of work for private clients and subadvisory services for mutual funds. However, in the United Kingdom and United States together, they have between 15 and 20 pension fund clients whose combined assets total 1 billion (U.S. $1.5 billion), including one U.S. pension fund and one U.S. foundation. Its U.S. pension fund client is the Tacoma (Wash.) Employees' Retirement System, for which Edinburgh manages a $33 million international equities account.
Among the U.S. clients that have terminated Dunedin are: the California State Teachers' Retirement System, Sacramento; the pension fund of Montgomery Ward & Co. Inc., Schaumburg, Ill.; the pension fund of U S West Inc., Englewood, Colo.; the Washington State Investment Board, Olympia; and the Rhode Island Retirement Systems, Providence.
In addition, some observers believe Scottish firms, and other non-U.S.-based niche managers in general, will have a tougher time competing effectively in the U.S. market where pension and other tax-exempt funds now seem to favor larger multiproduct U.S.-based managers.
Historically, U.K. - including Scottish - managers have touted their long experience in money management as one of their strengths. That story played well in America when competition among international money managers was more modest. But in recent years, the rise of big U.S. firms marketing international investment skills seems to have tipped the preference scales in American firms' favor.
"Over the past five to six years, the flow of money (into international investments) has most (heavily gone) to U.S.-based firms vs. U.K. firms," said Reza Vishkai, managing director, international research with consulting firm RogersCasey, Darien, Conn.
But Susan Douse, senior consultant with Watson Wyatt Worldwide in Reigate, England, believes the U.S. market is still wide open, providing room for good managers with differentiated styles.
And Gavin Dobson, CEO of Blairlogie Capital Management in Edinburgh, said compared with a year ago, his firm has experienced 10 times the amount of searches, mostly among North American organizations. That may be because Blairlogie has now accumulated three years of performance data, and for the three years is in the top decile of the PIPER universe.
As for Edinburgh, officials claim the Dunedin merger makes them even stronger in the international arena. Officials stress they already have a wide array of investment products. The merger substantially adds to the firm's assets under management: assets jump to 8.2 billion (U.S. $12 billion) from 3.4 billion (U.S. $5.4 billion) worldwide. The merger also makes Edinburgh the third largest investment trust manager in the United Kingdom, with 4 billion in assets.
Internally, Edinburgh gains stock-picking and technological strength from Dunedin; the latter was known for its use of technology as an aid to stock selection.
The merger also triggered a reorganization of Edinburgh.
Under the previous arrangement, three business groups - investment management, unit trusts and the oil and gas subsidiary - reported to the holding company. Under the new structure, the company will be arranged into eight separate groups. As part of this process, administration and marketing duties become separated from investment management.
Layoffs also are expected. The combined staffs total 270, of which 150 are from Dunedin. "There are major areas of duplication," said Iain Watt, chief executive officer of holding company Edinburgh Fund Managers Group PLC. He expects that, when the dust settles, Edinburgh's head count will roughly be 200 people - depending on the number of North American Dunedin clients retained.
On the investment management side, Mike Balfour will remain as Edinburgh's chief investment director and Richard Muckhart, Dunedin's investment director, becomes investment director of Edinburgh Fund Managers and reports to Mr. Balfour. However, Mr. Muckhart is in charge of emerging markets - which he said is "about to become a business of its own" at Edinburgh. (Edinburgh's Mr. Watt retains his position as CEO of the holding company and chairman of each operating group.)
Joel Chernoff contributed to this story.