Crain News Service
Sometimes you gotta take one for the team.
That's been the lesson for A I M Management Group Inc. since its parent, AMVESCAP PLC, bought LGT Asset Management from Liechtenstein's ruling family last year for $1.3 billion. The acquisition gave AMVESCAP a global network but left Houston-based A I M with the unenviable task of taking over the troubled and poorly performing $8 billion GT Global Fund family.
The upshot: The deal may have been beneficial for AMVESCAP but it has been a pain for A I M, which had been looking to diversify into international funds.
"Would we actively have sought them out? Probably not," said Robert H. Graham, president and chief executive officer of A I M and chairman of the managed products division for AMVESCAP. "Certainly it's brought some advantages, but it's brought some headaches as well."
Since taking over the funds in June, the Houston-based mutual fund manager has spent its time merging funds out of existence, reshuffling managers, chasing out market timers, stemming redemptions and trying to improve performance. Its work still isn't done.
"Turning the performance around has been, in some cases, more difficult than we anticipated," Mr. Graham said. "We had hoped we could stem the redemptions quicker than we were able to. It has been more of a painful process than we had hoped, but we think we're now getting there."
Characterizing the integration as "all part of the business," Mr. Graham said there are no plans to spin off the GT Global funds into which he's put so much work.
"We wouldn't consider doing anything with the funds now," he said. "They're fully integrated into our product line now. We're over our rocky phase."
There were 25 funds at the time of the acquisition; now there are 20. Of the survivors, 11 rate in the top 50% of their categories in year-to-date performance through Aug. 31, according to figures from Morningstar Inc., Chicago. The worst performer, the $270.8 billion-asset Global Growth and Income fund, which had a -4.54% return during the period, ranked in the 89th percentile. The Global Telecommunications and Technology Fund had a 24.9% return year to date, which put it in the 40th percentile.
To be fair, GT Global has some winners too, including the Small Cap Growth fund, with a 36.17% return that put it in the top 6%.
On a three-year basis, just seven of the 18 surviving GT funds that have been around that long had returns in the top half as of Aug. 31.
Not surprisingly, redemptions have been an issue. Between the time of the acquisition and Aug. 31, assets of the remaining funds fell to $6 billion from $6.4 billion.
"It's been somewhat of a disruption in terms of general momentum," said Geoffrey Bobroff, an East Greenwich, R.I.-based consultant to the mutual fund industry. "While they have been a significant player, they may have lost a quarter of a step."
For example, James Ellman, manager of the AIM Global Financial Services fund -- formerly a GT Global fund -- left in July to take a job with Merrill Lynch & Co. Inc. Nicholas Ford left in February after nine months as manager of the Europe Growth fund; his predecessor had served for only two months. Management changed hands on the Global Telecommunications and the Global Infrastructure funds as well.
"I think they underestimated how difficult it would be to align the two" organizations, said Dan Kobussen, an analyst for Morningstar. "They just didn't get a handle on some of the administrative issues fast enough."
Such turnover "is pretty bad," said Mr. Kobussen.
Mr. Graham said the firm didn't want to move too quickly, adding, "We don't contemplate more manager changes."
Two funds, the International Growth and Worldwide Growth, were merged directly into existing funds, rather than being liquidated first. This is often a controversial practice. Poorly performing funds often drag down the performance of the funds they are merged into, but in the case of A I M, Mr. Graham said, the assets in each of the GT Global funds were too small to have any real effect.
Whether the result of the mergers or not, performance of some of the AIM funds has slipped since they absorbed the GT Global funds. For instance, the AIM Global Growth fund, which took on the GT Global Worldwide Growth fund in February, ranks in the 17th percentile for three-year returns, according to Morningstar; year-to-date it's in the 57th percentile. The AIM International Equity fund, which swallowed the Global International Growth fund in February, ranks in the 48th percentile for three-year performance, but the 75th percentile for year-to-date performance as of Sept. 15.
A I M not only changed the management of what was once known as Global Telecommunications fund, but also broadened the portfolio's mandate to include technology. It's now called, not surprisingly, the Global Telecommunications and Technology fund.
"We continue to look at the remaining funds to see how they fit into our overall product line," Mr. Graham said. "If we decide something doesn't fit or work in our product line, we may recommend a merger for it. I don't expect there will be a substantial amount of that, if any."
A I M also has been busy chasing out market timers, who have dipped money in and out of some of the foreign sector funds managed out of London.
Some of the international sector funds, including the Europe Growth and New Pacific Growth, "had trouble up to now because there was quite a bit of market-timing money in those funds," Mr. Graham said. "It was really playing havoc with the portfolio managers because they could get shifts of 10% to 20% of the fund in or out on a single day."
While the acquisition of the GT funds diversified A I M's offerings beyond its core offering of midcap domestic funds, it will be some time before they start making a solid contribution.