LONDON -- PanAgora Asset Management is slashing its 22-person London operation to a two- or three-person marketing office, reversing its long-held view that it can operate twin money management centers.
While retrenching in London, the Boston-based structured investment manager's new joint venture with Frankfurt-based DG Bank is starting operations. The joint venture, awaiting regulatory approval, is expected to have about 14 employees, including a limited investment operation to handle German and European fixed-income and equities.
Colin McLatchie, chief operating officer and chief investment officer of PanAgora's London operation, will leave the firm Sept. 30. Only one of PanAgora's six London-based portfolio managers is expected to remain, relocating to either Boston or Frankfurt. Bob Ballou, U.K. director of marketing, also is leaving. Both Messrs. McLatchie and Ballou are considering other opportunities. Peter Rathjens remains as chief investment officer for the group.
Bruce Clarke, PanAgora chief executive officer, said the firm will center its investment operations in Boston.
"We can, from a single source, provide a more consistent investment product than from multiple sources," he said, although he praised efforts by Mr. McLatchie to ensure consistency in how PanAgora's products are managed.
The move is the latest by money managers to pare marginal operations. J.P. Morgan Investment Management recently sold its French and Australian units, while Societe Generale sold its New York-based mutual fund arm.
The London operation never has fully lived up to expectations, in part because of developments affecting PanAgora's parentage. Only $800 million of the firm's total $16 billion in assets are managed in Europe. PanAgora's London operation had a loss of L142,071 ($234,360) last year on revenue of L2.12 million ($3.5 million), although that represents a vast improvement from its L2.4 million loss in 1993.
Sixty percent of PanAgora London's 1997 revenue came from non-U.K. European clients, with the rest coming from Asia, the Middle East and North America.
Started in 1989 as a 50-50 joint venture between Shearson Lehman Brothers and Nippon Life Insurance Co., PanAgora's U.S. retail distribution was curtailed when parent American Express Co. sold Shearson's retail assets to Primerica Inc. and Lehman Brothers later was sold to management in 1993.
Plus, Japan's economic woes hobbled the firm's ability to sell equity-based products to the institutional and retail markets. Critics also said the firm started with relatively high fixed costs.
PanAgora did achieve some success selling global tactical asset allocation products, principally to U.K. pension clients. But weak performance and the defection in late 1994 of U.K. head Alan Brown and four colleagues to State Street Global Advisors led to the loss of all of the firm's U.K. pension clients, including Honeywell Ltd.
A year ago, the firm lost a key European equities account at Stichting Pensioenfonds ABP, the giant 290 billion guilder ($145 billion) Heerlen-based pension fund for Dutch civil service workers.
In February, Lehman sold its 50% ownership stake to Putnam Investments Inc., Boston. Observers believe Putnam has taken a more active role than Lehman executives in formulating PanAgora's strategic plan. Company accounts reveal Messrs. Clarke and McLatchie resigned from PanAgora's board in April, leaving no PanAgora executives on the board. Meanwhile, four Putnam executives joined PanAgora's board.
A spokesman for Putnam said the firm fully supports PanAgora's decision: "We are fully committed to PanAgora's future in Europe, as demonstrated by our support of their plans to expand through a joint venture through DG Bank in Frankfurt."
Putnam officials have taken a more active role, Mr. Clarke said, but that is natural given Putnam's experience as a money manager. Any notion of integrating the firms was rejected, he said.
A recent strategic review resulted in the decision that a full-scale investment operation in London no longer was needed, and that a regional approach would be better.
"What we learned is that if we have a strong local partner who can bring us strong distribution," local investment presence is not necessary in most markets, except perhaps for U.K. pension sponsors, Mr. Clarke said.
Instead, he said, PanAgora has profited from its joint ventures that provide non-U.S. distribution, including a strategic partnership with Nissay Asset Management in Tokyo, which is part-owned by Nippon Life. PanAgora has gained 10 major Japanese pension clients through that arrangement.
The new joint venture with DG Bank, which has ties with 19,500 German cooperative banks, will provide marketing in Germany, Austria and Switzerland, and eventually eastern Europe.
Peter Prentzel, managing director of DG PanAgora, said the firm will focus on large German spezialfonds and insurance companies.
The withdrawal of investment staff from London does, however, cast in doubt PanAgora's recent push of a U.K.-based global balanced strategy. That approach, which has produced returns of 1.5 percentage points above The WM Co. median, has not yet attracted British pension money, although it has pulled in $110 million in investments from other European institutions with significant U.K. liabilities. Management of those accounts will be shifted to Boston.