NEW YORK - One pension fund has dropped UBS Asset Management (New York) Inc. and another has asked firm officials to attend a board meeting, following recent personnel departures from the firm.
Officials for the $20 billion Los Angeles County Employees' Retirement Association dropped UBS as manager of an $825 million corporate bond portfolio following the resignations of several members of its fixed-income department.
"As a result of recent departures, the key decision-makers for corporate bond selection are no longer at UBS," stated a memo by Los Angeles County fund investment staff.
The loss of the pension fund is expected to be of concern to UBS as other clients review their relationships with the firm.
The $4.5 billion District of Columbia Retirement Board already has asked UBS Asset officials to attend the board's June meeting to discuss the changes at UBS Asset.
Jeanna Cullins, executive director, said, as a matter of policy, the board calls in an investment manager for discussions when there are significant changes at the firm. She said UBS Asset manages about $50 million in a cash management portfolio for the Retirement Board.
Disagreeing with Los Angeles County's view, UBS Asset officials recently sent clients a letter saying the firm's investment expertise was intact.
In an interview, Jim McCaughan, UBS Asset president, said those who left were a "small minority of the people who created (UBS Asset's core corporate bond investment) track record."
Thus far, said Mr. McCaughan, only a "very small number" of clients have left UBS Asset because of the personnel defections. He would not identify those clients.
UBS has $22 billion under management from tax-exempt clients, of which about $9 billion is fixed income.
But LACERA's staff described the loss at UBS as serious for core corporate bond management.
According to the staff memo, after an interview with UBS Asset in New York, the LACERA staff reached several conclusions:
The resignations from UBS Asset have severely diminished UBS' investment capabilities in the core corporate bond area.
UBS Asset's corporate sector has lost all key decision-makers and its primary sources of new investment ideas.
UBS Asset's mortgage expertise has been considerably decreased.
Subsequently, the Los Angeles County fund's board authorized ending its investment management agreement with UBS Asset. The staff then instructed UBS Asset to immediately cease trading on LACERA's portfolio.
The board also approved transferring assets from UBS Asset to IDS Advisory Group Inc., Minneapolis; Loomis, Sayles & Co., Boston; and Western Asset Management Co., Pasadena, Calif. The three are current core corporate bond managers for the fund.
The resignations of Louis Cohen, Michael Kimble and Taylor Wagenseil were of particular concern. The three comprised UBS Asset's fixed-income credit committee, according to the pension fund staff. Mr. Cohen also was the lead portfolio manager for the pension fund's portfolio.
Other resignations of concern to the fund were those of Dan Roberts, former managing director and head of fixed income; Janet Murphy, whom the pension staff identified as the back-up portfolio manager to Mr. Cohen; and John Melvin, senior analyst in mortgage-backed securities area.
Several of the members who left joined Refco Group Ltd., which is getting into investment management (Pensions & Investments, May 12).
Juan M. Almaguer, investment officer for fixed income at the fund, said he was "disappointed" at the personnel losses at UBS Asset. He said he went to New York and talked with remaining UBS officials for three hours.
Mr. McCaughan disputed the claim that key decision-makers had left in the core corporate bond area.
Nor, said Mr. McCaughan, had UBS Asset's investment capabilities been severely diminished in that area. He said UBS' strategy group had not been affected.
Mr. McCaughan also disagreed that mortgage expertise had been significantly decreased. He said his firm hasn't lost its primary sources of new investment ideas, either: "Our analytical team is here. I don't know where else we got our investment ideas."
Concerning professionals who went to Refco, Mr. McCaughan said, "I think they liked the old shop approach where each investment area was run as a separate business. The fact is that the competitive advantage in the future will come from information sharing across a global firm. If they want to operate in a boutique structure, well then good luck to them."
UBS Asset barely had the Los Angeles County money in its possession before being asked to give it up. Although hired last November, the firm only received the $825 million allocation in March.
But the pension fund staff had looked upon UBS Asset as one of its anchor managers. UBS Asset had been given 10% of the fund's total fixed-income money.
During the selection process, pension staff had given UBS Asset a top grade for its investment process and a nearly top grade for its past investment performance and organization out of 31 bond managers reviewed. In the core corporate bond area, the fund gave UBS Asset all top grades.
In their letter, UBS Asset officials acknowledged some recent departures and referred to them as "highly undesirable." However, it claimed the resignations at the end of April were only five of 25 fixed-income staff members.
It said existing and newly promoted staff members will make UBS Asset "the clearly recognized center of excellence in dollar fixed-income investing for UBS."
The new head of UBS Asset's fixed-income team, Ranji Nagaswami, has been with the firm for 11 years, the UBS letter pointed out to clients. She had been a senior portfolio manager and a strategist on UBS Asset's economic outlook committee.
She "is one of the most experienced and capable investment professionals I have ever come across," said Mr. McCaughan.
With Ms. Nagaswami heading the fixed income group and Arnold Shapiro heading mortgage securities, UBS Asset is particularly strong in the mortgage area, according to Mr. McCaughan.
Mr. Shapiro "is one of the most experienced in the industry in mortgage bonds," he said.