The king is dead. Long live the queen.
Fred Grauer's 16-year reign as king of indexing came to a sudden end last Monday, as he resigned to pursue undetermined opportunities.
Patricia Dunn, co-chair (with Mr. Grauer) of San Francisco-based Barclays Global Investors since January 1997, has been named sole occupant of the chairman's position and has taken Mr. Grauer's place on parent Barclays Group PLC's 10-person executive committee.
Industry observers were buzzing at Mr. Grauer's sudden departure. They questioned why he would leave a business he had painstakingly built without any warning, and only three months after being named to the parent company's executive committee.
Experts say Mr. Grauer's departure poses no threat to BGI's ability to manage money.
"They have a strong team there. We have a lot of confidence in Pattie Dunn" and CIO Blake Grossman, said Stephen L. Nesbitt, senior vice president, Wilshire Associates Inc., Santa Monica, Calif.
Ms. Dunn said Mr. Grauer had accomplished everything he wanted in building the manager into a $565 billion behemoth -- the world's largest passive manager and one of the top managers of tax-exempt assets.
"I think he wants to go build something else," she said.
Mr. Grauer could not be reached for comment. He said in a statement: "BGI is ready for its future as the No. 1 global investment manager, and I am very proud of its capabilities.
"At this point, I'm interested in brand new challenges."
But adding to the buzz, Mr. Grauer's resignation was announced at the same time as that of Richard Reay-Smith, chief executive of Barclay's U.K. retail banking division, suggesting a boardroom shakeup.
The timing, Ms. Dunn said, was "completely coincidental."
BGI staffers were "very surprised" by Mr. Grauer's abrupt departure, Ms. Dunn acknowledged. But his decision to quit was in line with his character, she said. Once Mr. Grauer decided to leave, "I don't think he wanted to hang around to be a lame duck, even for a minute," she said.
NOT SURPRISED
Lindsay Tomlinson, chief executive of BGI's European operations, added it was "pretty clear" Mr. Grauer "would want to move along" within five years of the December 1995 sale of the former Wells Fargo Nikko Investment Advisors to Barclays.
"Without a doubt, it was sudden. But basically it was likely to happen at some stage," he said. The decision to leave the company was entirely Mr. Grauer's, Mr. Tomlinson said.
Some industry sources, however, said they doubt Mr. Grauer would leave so suddenly with no plans in place. Mr. Grauer attended a series of BGI meetings at Glyndebourne, a posh outdoor opera center in southern England over the weekend preceding his resignation. From there he returned abruptly to San Francisco.
One rumor has it that he was seeking a bigger compensation package from Martin Taylor, Barclay Group's chief executive officer. Mr. Grauer was told to leave after delivering an ultimatum, according to the rumor.
This scenario would fit with Mr. Grauer's reputation as a feisty negotiator. "Fred is one very tough-assed negotiator," said one source who has been on the other side of the table from him.
And despite oft-repeated statements by BGI staff that Mr. Grauer has a strong personal bond with Mr. Taylor, one leading consultant, who asked not to be named, said BGI officials told him relations between the bank and BGI are expected to be smoother with Ms. Dunn at the helm.
Wilshire's Mr. Nesbitt disagreed with the rumor mill. "I don't think there's anything suspect at all" in Mr. Grauer's decision to leave, Mr. Nesbitt said. He suggested the draw to be closer to his family -- he has 10-year-old twin boys -- might be a factor.
"I know Fred personally," Mr. Nesbitt said. "I think he felt it was time."
Mr. Grauer first joined Wells Fargo Bank's quantitative investment unit in 1979, only to leave 18 months later to work in institutional sales for Merrill Lynch.
He was recruited in September 1983, when the business was on the brink of collapse, following the departures of top executives Bill Fouse and Tom Loeb, who formed crosstown rival Mellon Capital Management.
Starting with a base of $12 billion, Mr. Grauer was the architect of Wells Fargo Investment Advisors' strategy and development. He also negotiated the sale of half of the firm to Nikko Securities in 1990, and engineered the December 1995 sale of the entity to Barclays, which had both passive and active money management units.
Shortly thereafter, the balance of power shifted from a partnership between San Francisco and London to the clear dominance of California. London's traditional active management was dropped, replaced by quantitative strategies.
Mr. Grauer has shared power with Ms. Dunn through most of the 1990s. Mr. Grauer is known more as the strategic thinker, while Ms. Dunn -- who originally joined Wells on a part-time basis in 1976 -- is noted more for her mastery of trading and execution issues.
In recent years, the firm has pursued higher-fee active quant strategies, which now make up 22%, or $126 billion, of BGI's $565 billion in assets under management.
Ms. Dunn said there will be "no changes at all" to BGI's strategic plan as a result of Mr. Grauer's departure.
In fact, BGI has just won a substantial commitment from the parent to finance the manager's new strategic plan. "It probably will go down as Fred's final contribution to the firm," Ms. Dunn said.
While declining to say how big the financial commitment is, she said BGI is going to expand its research and product development division, overseen by Mr. Grossman. BGI will focus on global strategies, particularly fixed income.
The manager also will invest heavily in technology, so it can operate as "a single global investment company," Ms. Dunn said. What's planned is that BGI officials can trade from any of the company's five investment centers around the world at any time of day or night, instead of passing off the trading book from office to office.
BGI also will continue developing its burgeoning transition management business, allowing clients to trade securities with BGI's enormous inventory.
ADDING TO DC BUSINESS
Elsewhere, BGI is investing in its defined contribution business. It manages $48 billion in unbundled U.S. defined contribution assets, and offers both bundled and unbundled products in the fledgling U.K. market, where it runs $500 million.
BGI also will continue to build its business outside of its traditional strengths of the United States and Great Britain. In fact, its Toronto-based unit was the fastest growing investment manager in Canada in four of the past five years, she said. Assets under management in Canada doubled last year to U.S.$12 billion, Ms. Dunn said.
Similarly, BGI's Japanese businesses -- Barclays Nikko Global Investment Advisors and Barclays Trust Bank -- have been going great guns, rising to $17 billion under management from $5 billion three years ago.
Ms. Dunn said she had no immediate plans to name an heir apparent. "I'm going to take a week or two on that one," she laughed. "I expect to be here for a good long time."
