NEW YORK - At least three large pension plans have terminated Chancellor LGT Asset Management Inc. this year, with several others watching the manager closely.
And for many clients, the resignation Aug. 8 of Warren Shaw, global chief investment officer and chief executive officer, is a sign of the ultimate failure of the merger between Chancellor Capital Management and Liechtenstein Global Trust AG.
The pension funds and their consultants already were watching Chancellor LGT, nervous about the prospects for success of the merger, alarmed by staff departures (at least 20 senior staff have left this year) and unnerved by the continued poor performance of many of its strategies.
Those that have terminated Chancellor since the beginning of the year include the Louisiana State Employees' Retirement System, the Illinois State Board of Investment and Kern County (Calif.) Employees' Retirement System. All cited performance problems.
Other pension fund trustees, such as those at the Contra Costa County (Calif.) Employees Retirement Association and the Chicago Policemen's Annuity & Benefit Fund will be discussing the situation at their board meetings later this month.
The Washington State Investment Board, Olympia, just put the firm on a watch list to assess the changes, said Nancy Calkins, senior investment officer of public equities.
"Chancellor made the statement over and over (after the merger) that Warren Shaw would remain in place and would have oversight over the investment process. We got a lot of comfort from those statements. It's disturbing that he's now going," said Robert Borden, chief investment officer of the Louisiana employees' system, Baton Rouge, which has about $5 billion in assets.
Louisiana terminated Chancellor for a $250 million large-capitalization growth equity account in June because of poor performance over the previous nine months, said Mr. Borden. While performance was the primary reason, Mr. Borden said system officials and the system's consultant, New England Pension Consultants, "were acutely aware of the merger. We conducted a detailed review of the situation and came away unconvinced that they would be able to correct the problem," Mr. Borden said.
Many pension fund clients of Santa Monica, Calif.-based Wilshire Associates use Chancellor LGT, especially for its large-cap growth equity strategy, said Vida Jatulis, senior associate. Wilshire placed Chancellor LGT on a watch list last year, at the time of the merger. A number of Wilshire clients have terminated in the last few months, she said. She would not identify them.
"One positive of the merger was that Chancellor would stay intact, that Warren would stay and that there would be no change for Chancellor. We were assured that Chancellor would take the top role in the investment management and now it seems it won't play a major role at all," Ms. Jatoulis said. "In many ways, Warren Shaw really made Chancellor what it was. He was the investment person."
Mr. Shaw, a 23-year veteran of Chancellor and a well-known, well-respected figure among institutional investors, and Penny Zuckerwise, president and chief operating officer and a 17-year employee, both resigned from the firm in the face of a restructuring plan they said designed.
Mr. Shaw said he and Ms. Zuckerwise suggested options for the restructuring of North American operations and "this is the one which worked out for the best for Chancellor LGT's clients and for the people at the company."
While their jobs were not eliminated in the restructuring, they will be changed and Mr. Shaw said "it's a personal decision. We all have choices to make about the kind of changes and the level of changes we are willing to accept."
Mr. Shaw denied rumors that he had a falling out with the chairman and group chief executive officer of LGT, Prince Phillipp von und zu Liechtenstein, brother of the ruling monarch of Liechtenstein. Mr. Shaw also emphasized he and Ms. Zuckerwise resigned voluntarily and "are certainly not being forced out in any way."
Both will remain at the firm until the end of the year and both said they will work hard to ensure a smooth transition. Neither has announced future plans.
"It has taken all our energy to get to this point and while it's sad and disappointing for us to leave and for Chancellor LGT, the new structure makes all the sense in the world. We thought last year that LGT was the perfect partner for Chancellor and we still think so today," said Ms. Zuckerwise.
LGT Trust announced in early August that it will split management of the institutional and retail sides of the business in North America. Institutional separate and commingled accounts will be handled by Chancellor LGT from New York, under Paul Loach, who was named chairman of the board of Chancellor LGT. Mr. Loach was head of European asset management operations in London. Chancellor LGT managed $28 billion for North American institutional clients as of Aug. 5.
Mr. Loach said he is not sure yet whether Mr. Shaw's jobs as domestic chief investment officer and chief executive officer and Ms. Zuckerwise's two roles will be maintained in their old forms. Mr. Loach said he will work with the existing investment management teams to redefine those positions and will begin recruitment efforts this fall. Mr. Loach emphasized a Chancellor employee or an "outsider whom every pension sponsor will know" is likely to be selected for the North American CIO's role, rather than someone from LGT's top management ranks.
The retail mutual fund operations, based in San Francisco, will be the responsibility of William Guilfoyle, president of GT Global Inc. GT Global had about $11 billion from North American clients in its 21 mutual funds as of Aug. 5. Richard Healey, senior vice president, director of retail marketing, for GT Global, said there will be no significant operational changes in the management of the mutual fund business.
The restructuring itself is purely a business management decision and will not affect the investment management side of the business, said Alexandra Trower, a company spokeswoman. But many industry observers don't believe investment management will go unscathed, much less improve, without Mr. Shaw's oversight.
"We had the most hope in this whole deal that Warren Shaw might be able to go in as global CIO and deal with the whole problem of LGT's poor investment performance. A number of our clients also use LGT for international and global strategies. But that hope is now gone and we've lost a lot of confidence on the domestic equity side," said Wilshire's Ms. Jatulis.
The performance of most of Chancellor LGT's domestic equity products has been poor during the past five years, according to comparative data from the Pensions & Investments Performance Evaluation Report as of March 31, the most recent period for which full data is available.
Chancellor LGT is best known as a large-cap growth equity manager. Its large-cap growth composite for separately managed accounts never ranked above the median PIPER return for the strategy in the periods ended March 31. For the quarter, year, three-year and five-year periods, returns and medians were: -4.9 vs. 0.1; 9.8% vs. 15.4%; 17.6% vs. 19%; and 12.8% vs. 14.4% periods. (Returns for periods of more than one year are compound annualized.)
The return in its small-cap growth composite strategy in the first quarter was even more dismal, placing in the ninth and 10th deciles during the periods. For the quarter, the small-cap composite returned -16.2% vs. -10.6% for the PIPER median; for the year, -17.1% vs. 2.5%; the three-year, 10% vs. 15%; and for five years, 7.3% vs. 14.9%.
Performance of GT Global's international mutual funds also has been poor over the past few years, said Gregg Wolper, associate editor at Morningstar Inc., Chicago. "There has been so much turmoil in the manager ranks at GT Global and it's been so recent, that it's really just too early to predict or say for sure that performance is improving," he said.
But GT Global's Mr. Healey said performance has been improving.