BOSTON - United Asset Management Corp. started the new year by taking as much as a $175 million charge against '97 earnings. It also needs to patch up a damaged subsidiary and boost marketing support for all its subsidiaries.
UAM's fortunes are closely watched by the money management industry because UAM is the largest acquirer of money management firms.
UAM's stock dropped 11/2 points Jan. 22, the day the results were announced, closing at 2113/16. On Jan. 23, it closed at 217/8.
Money management units of the Boston-based holding company lost $16 billion in client assets in 1997, almost half in the fourth quarter.
Jonathan Hubbard, UAM spokesman, said negative client cash flow is not an indication the firm is doing poorly.
"It's the nature of the defined benefit business to have negative outflows," he said.
UAM lost $7.5 billion in assets under management, in large part because of trouble at three subsidiaries: real estate money manager Heitman Financial Ltd.; equity manager Newbold's Asset Management Inc.; and timberland manager The Campbell Group.
Of the charge against earnings, 80% is the result of problems at Heitman and 20% because of problems at Newbold's. The charge will lead to a net loss of $1 to $1.12 per share for the fourth quarter.
UAM owns more than 50 management firms worldwide, in most cases as 100% owner.
The Heitman write-off is due to the earlier-than-expected liquidation of closed-end commingled funds. Most of the commingled funds were acquired when UAM bought JMB Realty Advisors Inc. in 1994 and merged it with Chicago-based Heitman.
But the real estate firm has other problems too.
Asset growth has stalled. At the end of 1996, Heitman had $10 billion of assets under management, compared with $10.7 billion at the end of 1995 and $10.4 billion at the end of 1994.
As the closed-end funds are liquidated, some industry observers wonder if Heitman can persuade clients to reinvest their money with the firm.
Heitman Chairman Norman Perlmutter said the clients already are reinvesting.
According to Mr. Perlmutter, the company sold $1.3 billion of real estate in 1997. Some of that money will be reinvested in Heitman's managed real estate investment trust subsidiary, he said.
Heitman also soon will lose the management fees from assets that are partially owned by the Orange County Retirement Systems, Santa Ana, Calif.
According to several industry sources, Orange County has forced the sale of a portion of 10 properties - appraised at around $500 million - in which it is a co-investor with other pension funds and Heitman group trusts.
The buyer of the properties reportedly is Walton Street Capital, a real estate fund operated by Neil Bluhm, the "B" in JMB Realty.
"We are in a very sensitive period right now, a quiet period," was all Mr. Bluhm would say. Telephone calls to Orange County were not returned.
Meanwhile, Heitman has reduced its fees on its remaining group trusts about 20%, said Michael Humphrey, a partner with Courtland Partners, a Cleveland-based real estate consulting firm.
Heitman's strategy going forward employs a three-pronged approach to the real estate investing business: managed REIT portfolios; opportunistic real estate; and foreign real estate, Mr. Perlmutter said.
Heitman/PRA Securities, the REIT subsidiary, is well-regarded, Mr. Humphrey said.
It remains to be seen if the other parts of the strategy will be attractive to pension funds.
Wall Street investment banks have captured the bulk of the money that pension funds have funneled to opportunistic funds. They have performed exceptionally well and are receiving new infusions. Heitman only recently has entered this line of business.
Another trouble spot for UAM is Newbold's, an active large-capitalization value equity manager in Bryn Mawr, Pa.
Newbold's had $4.3 billion under management at the end of 1989, shortly before it was sold to UAM. The firm's business grew to $9.4 billion in assets under management by year-end 1994.
Trouble began in 1995 when, despite strong gains in the stock market, Newbold's began to be terminated from management jobs, with performance cited as a factor.
UAM tried to stave off disaster by tucking Newbold's under the wing of another UAM subsidiary, Pilgrim Baxter & Associates of Wayne, Pa. However, assets continued to slip away from Newbold's and by the end of 1996, Newbold's reported it had $4.8 billion in assets under management.
Not included in the charge, but a part of the last quarter's losses, was the lost business of UAM subsidiary The Campbell Group Inc., Portland, Ore., which specializes in timberland investments.
The Campbell Group was in a $1.3 billion partnership with the timber group at John Hancock Mutual Life Insurance Co., but after the companies became combative, Hancock fired the Campbell group at the end of the year.
UAM will have to pay for the marketing efforts needed to win new business for the Campbell Group. In addition, UAM executives said they will increase marketing and distribution for all subsidiaries and boost financial support for UAM Investment Services Inc., which helps affiliates with marketing.