ATLANTA -- Saving Chancellor LGT Asset Management is requiring some atypical thinking by senior executives at parent company AMVESCAP PLC.
With $8 billion of pension fund client losses racked up in the five quarters preceding its May purchase of the firm, AMVESCAP has its hands full with its new baby.
In fact, sources say it is because of the lost assets that AMVESCAP was able to buy Chancellor so cheap -- at slightly more than $1 billion, rather than the $1.3 billion it expected to pay.
But there's evidence the pace of client defections may be slowing. For example, the $5.2 billion Chicago Municipal Employees' Annuity and Benefit Fund is sticking with INVESCO (NY) -- Chancellor's new name.
When INVESCO PLC purchased A I M Management Group Inc. in early 1997, it largely left the mutual fund company alone. But AMVESCAP executives have had to perform some quick triage to save what they can of Chancellor LGT. Staff and client losses had been heavy during the 18 months after the firm's acquisition in 1996 by Liechtenstein Global Trust.
For starters, integrating Chancellor LGT has led to layoffs of about 600 at AMVESCAP. About 350 followed the merger of Chancellor's San Francisco mutual fund division, GT Global Funds, with A I M. Even the GT Global brand name disappeared into A I M on June 1, along with $8 billion in mutual fund assets.
The remainder of the job cuts will be in back-office administration, said Robert McCullough, chief financial officer.
INVESCO (NY) now is under the leadership of Frank Keeler, chief executive officer. He previously was president of INVESCO Management & Research, Boston, AMVESCAP's quantitative equity shop.
"We made it clear to everyone (at Chancellor) that we were buying people with investment skills and its product line. We invited the whole staff to stay," said Mr. Keeler.
Personnel defections also seem to have slowed.
After LGT bought Chancellor, staff heavyhitters -- including Warren Shaw, global chief investment officer; Penny Zuckerwise, chief operating officers; and whole teams of specialist portfolio managers left.
Now, "what's really interesting is the absence of personnel departures at Chancellor since bonus checks were paid in January. They haven't lost anyone they didn't want to lose," said Paul Troup, executive vice president at Callan Associates Inc.'s Atlanta office.
Mr. Troup and others believe AMVESCAP executives made the right decision when they combined all the mutual fund operations under A I M, which they said already had a strong infrastructure. But they're still waiting to see how the firm will integrate INVESCO (NY)'s still substantial -- nearly $21 billion -- institutional separate and commingled account business.
When the acquisition of Chancellor LGT was announced, Charles W. Brady, AMVESCAP chairman, said some of Chancellor's strongest areas would help fill gaps in AMVESCAP's product line, particularly in growth equities, quantitative, structured equities, structured loan products and alternative asset classes.
That's still the case, Mr. McCullough said. In addition, he said through AMVESCAP's strong distribution system, executives hope to offer those products to broader institutional and retail markets.
But questions remain, such as whether INVESCO (NY)'s reputation has been damaged beyond repair.
Chancellor LGT's assets under management dropped to about $20.2 billion as of March 31 from $37.2 billion as of Dec. 31, 1996, the time of Chancellor's purchase by LGT.
Performance of its flagship large-capitalization growth equity strategy dropped enough to cause institutional clients and their consultants to put the company on watch lists and, eventually, to terminate Chancellor.
While performance has been improving, said Mr. Troup, data from Pensions & Investments' Performance Evaluation Report still showed a fairly bleak picture at the end of the first quarter.
PIPER data showed INVESCO (NY)'s large-cap growth strategy never made it above the sixth decile for the one, three and five years ended March 31.
With few exceptions, none of its other four main equity strategies ranked above the fifth decile for any of those periods. The exceptions? Its Risk-Controlled Alpha equity strategy, which ranked in the top decile performance for the quarter and third decile for the year ended March 31. And the value equity strategy ranked in the third decile for the five-year period.
Messrs. Keeler and McCullough say they are rebuilding INVESCO (NY). But one consultant who preferred not to be named said no one -- including AMVESCAP executives -- is sure what to do with INVESCO (NY).
"The consultants haven't been told what they intend to do with the institutional business," said the source.
"I think its going as well as one would expect, although it's not totally clear where they will go with all they got from Chancellor," said Robert Mumby, an equity analyst in the London office of Credit Suisse First Boston.
Callan's Mr. Troup has faith in AMVESCAP's marketing machine. "The institutional sales staff there is very good. They will fix this. There's a lot of depth, skill and professionalism that pervades the whole organization, and they'll keep banging on prospects until they cave in."
Through all the changes, some clients remain happy. Said Jim Mohler, senior investment officer at the Chicago Municipal fund: "Chancellor has been bought before while we were with them and there wasn't a problem, so it shouldn't be a problem this time." The fund has between $30 million and $35 million in venture capital and private placements with what now is INVESCO (NY).
But others have jumped ship, or are considering doing so:
* The $21 billion Tennessee Consolidated Retirement System, Nashville, decided to search for a replacement for INVESCO (NY), which manages $120 million in an emerging markets equity portfolio.
* The Police & Fire Department Retirement Plan of the San Jose (Calif.) Retirement Systems recently terminated INVESCO (NY), which had managed $62 million in large-cap growth stocks. The Federated City Employees Retirement System, also part of the San Jose system, is following suit. The firm manages $78 million in large-cap growth stocks.
* The $10.6 billion Public Employees' Retirement System of Nevada, Carson City, terminated INVESCO (NY) for management of a $400 million large-cap growth portfolio because the fund moved to an indexed approach. Throughout the period of staff turmoil, Chancellor maintained a positive dialogue with staff, said Laura Wallace, investment officer. Chancellor LGT officials kept Nevada PERS informed about the second merger, said Ms. Wallace.
Officials at the $37 billion Washington State Investment Board, Olympia, said INVESCO (NY) executives discussed all the merger issues with them too. The firm runs a $385 million Pacific Basin portfolio for Washington. Said Tom Ruggels, investment officer of the public equity unit: "Our portfolio manager is still in place and we are satisfied." Still, Washington has placed INVESCO (NY) on probation.
But Tom Milne, chief investment officer for the Tennessee system, said "We found out with everyone else -- when they went public with the decision."
