FRANKFURT, Germany -- At Commerzbank Asset Management, bigger does not mean better.
"For us, size is not a relevant aspect of our business. It's profits," said Heinz Hockmann, deputy member of the bank's board of managing directors, who oversees the bank's investment management operations. He joined the bank's management board June 1, making him one of the top-ranked executives at the Frankfurt-based bank.
Like arch-rival Deutsche Bank, Commerzbank aspires to be a global player on the money management scene. Unlike Deutsche Bank's leadership, Mr. Hockmann has chosen to avoid integrating Commerzbank's money management units around the world, instead adhering to a holding company structure that includes a number of niche operations that retain individual brand names.
Non-German acquisitions include Montgomery Asset Management LLC and Martingale Asset Management in the United States, Jupiter Investment Group PLC in Great Britain and Caisse Centrale de Reescompte in France.
"In investment management, you have to deal with superstars, prima donnas (who are) difficult to put into hierarchical structures," he said.
But Mr. Hockmann's goal of becoming a global money manager might be at odds with his strategies of both acquiring niche players and developing organically.
"His strategy is not wrong, but the pieces he has done it with might be too small" to develop sufficient scale, said Richard Morris, managing director of Putnam, Lovell, de Guardiola & Thornton Inc., London.
Outside Germany
The real challenge Commerzbank will face will be in non-German Europe, Mr. Morris added.
Indeed, with some analysts speculating the entire bank eventually will be forced to sell or merge to attain sufficient scale, the bank's asset management strategy could be altered over time.
There is no immediate prospect of a merger, although when consolidation hits the German banking sector, Commerzbank and Dresdner Bank AG are likely to be in the center of the fray, said John Leonard, European banking analyst for Salomon Smith Barney, London.
With $137 billion in assets under management as of March 31, the bank still has a long way to go to make it to the top tier of money managers.
But officials have been developing the bank's capabilities and expanding its reach in Europe, the United States and Asia. And plans are to keep building.
Mr. Hockmann said he focuses on profitability but the bank does not break out earnings for its asset management division.
Last December, Mr. Hockmann formed a new unit in Frankfurt to coordinate marketing and product development for Commerzbank's far-flung operations.
The bank is pursuing a strategy of decentralized product development and regionalized marketing. Each money management entity pursues its own investment expertise but is responsible for distributing and marketing the entire range of products from the whole group.
CCR center
For example, Paris-based CCR, which was acquired in 1993, has become the bank's center for money market products -- not surprising given France's penchant for such products. CCR since has added domestic bonds and picked up an equity team from Fimagest, also in Paris. But cross-marketing also provides the manager with a global bond capability, which is managed out of Frankfurt.
Commerzbank officials hope the bank's recent purchase of a 4% stake in Credit Lyonnais will provide additional distribution channels in France.
Meanwhile, London-based Jupiter has become a leading U.K. seller of retail mutual funds, outstripping the growth rate of its pension business.
While Jupiter's pension assets have doubled to L4.8 billion ($7.5 billion) since its April 1995 acquisition, its retail funds have grown nearly tenfold, to L2.5 billion from L280 million.
Mr. Hockmann said he never was keen on Jupiter's institutional business. "Why would you want a business that's not making money?"
Claire O'Donnell, head of institutional business development at Jupiter, said the firm's institutional business is growing, particularly for high-performance U.K. equity portfolios. The business is profitable, and the firm remains committed to the U.K. pension market, she said.
Jupiter probably will rake in more than L100 million in pre-tax profits this year, Mr. Hockmann said. Jupiter achieved pre-tax profits of 161 million deutsche marks ($96 million) last year, according to the bank's annual report.
Purchased for L176 million, Jupiter has a current market value of L3 billion, he said. It has a superior European small-cap strategy; plans are to add U.S. and Japanese small-cap capabilities.
Meanwhile, Commerzbank's domestic retail capability has been greatly strengthened by buying out HypoVereinsbank AG's 42.7% stake in ADIG, Germany's oldest and fourth-largest mutual fund company with 60 billion deutsche marks ($31 billion) in assets under management.
Combined with Commerzbank's previous 42.7% stake, the Frankfurt bank now has control of ADIG, which stands for Allgemeine Deutsche Investment-Gesellschaft mbH.
Commerzbank will use ADIG as a springboard into retail markets across Europe, said Markus K"nig, assistant vice president. The next focus will be on distribution in Italy, where the bank's cooperative arrangement with insurance giant Assicurazioni Generale, Trieste, will help. Other mutual fund oriented markets, such as Spain, likely will follow.
Commerzinvest, the bank's domestic institutional asset management arm, with $34 billion under management, also has fared well. It was top-ranked by Greenwich Associates' biannual study of the German Spezialfond market in 1996 and 1998.
In the United States, Mr. Hockmann acknowledged, San Francisco-based Montgomery Asset Management did go "through some tough times" when emerging markets fell apart in the mid-1990s. Pre-tax profits were a paltry 3 million deutsche marks last year, down from 10 million deutsche marks in 1997. Revenues were not disclosed.
Scott Tuck, chief marketing officer since January 1998, had been brought in from Chancellor LGT in New York, to reinvigorate marketing efforts.
Montgomery's broker distribution channel also was abandoned because it wasn't cost-effective.
Looking for more
The bank is seeking additional distribution channels in the U.S., Mr. Hockmann said, without giving any clues on his plans. He added the Internet has radically changed options for U.S. retail investors.
Despite emerging-markets problems, Montgomery is viewed as a successful manager, particularly for international equities. "They're really a series of boutiques within one firm," said Jeff Nipp, head of investment research at Watson Wyatt Worldwide, Atlanta. Emerging-markets clients generally have stuck with the firm and its U.S. small-cap product also has performed well, he said. The firm holds the bank's expertise in U.S. equities, and also markets the more conventional products of Martingale Asset Management, Boston. (Martingale continues to market separately its more esoteric products, such as a market-neutral strategy.)
But the deals have worked because of the bank's hands-off policy. "They let us do our thing with whatever resources we need," said Bill Jacques, Martingale's chief investment officer. For example, the bank provided seed money for a macro-cap value product that has proven to be a winner for the manager.
Asian expansion
Meanwhile, Commerzbank also is pursuing Asia. Its Commerz International Capital Management GmbH -- founded by Mr. Hockmann in 1989 -- has long-standing operations in Singapore and Tokyo. In fact, it was the first foreign manager to win a mutual fund license in Japan, said Susanne Otto, marketing manager for the bank's asset management division.
More recently, Commerzbank has acquired majority control of KEB Investment Trust Management Co. Ltd., Seoul, South Korea, giving it a foothold in what promises to be a high-growth market. The bank also has a 25% stake in Capital Investment Trust Corp., Taipei.
The down side of the bank's acquisition strategy is that it has cannibalized the role of its Commerz International subsidiary, which has seen the U.S., U.K. and French parts of its turf taken away.
