LONDON -- Barclays PLC will create a new holding company for Barclays Global Investors to make it more flexible and competitive in attracting and retaining top staffers.
But observers think the holding company structure, which is subject to shareholder approval, could be a prelude to a partial initial public offering of BGI, the world's largest institutional money manager, with $786 billion in assets under management as of year-end 1999.
A partial selloff would enable Barclays to realize some of the bank's own investment in BGI and give senior management an equity stake in the business.
One investment consultant also speculated the holding company structure would make BGI more vulnerable to being sold in its entirety, although Barclays' executives say BGI will play a critical role in the group's future.
Matthew W. Barrett, Barclays' group chief executive, said the new structure will ensure speedy decision-making and agility at BGI, and affirms the manager's independence.
Patricia Dunn, chief executive of San Francisco-based BGI, said the new structure "recognizes that investment management is different from banking."
"It will enable us to be more flexible, and I think it recognizes the primary success factor in BGI's business is intellectual capital; and that, historically, has not been the driver of success in retail and commercial banking," she added.
While BGI has had a shadow equity plan for many years, the holding company structure will enable the manager to grant stock options to key personnel and senior managers, Ms. Dunn said. She declined to say how many people would be covered by the stock-option program.
The incentive pay plan has been in the works for more than a year, she said, and is not in response to the recent defections of several senior BGI staffers to rival firms.
Outsiders said senior BGI executives had been impatient for equity stakes for some time.
"So they should be over the moon in San Francisco," said a senior money official based in London who works for a U.S.-based money manager.
A London-based analyst said the plan to establish BGI as a separate entity was the consummation of Barclays' 1996 purchase of Wells Fargo Nikko Investment Advisors, San Francisco. He also said the move would separate the business from the Barclays group in the increasingly litigious environment among pension trustees. A BGI spokesman said creation of a holding company is irrelevant to the parent's liability.
But few analysts saw the planned unbundling of BGI into an independent holding company as a precursor to the outright sale of the business. If sold, BGI would fetch at most 1% of assets under management, or $5 billion, although most thought the business could get only 0.6% of assets under management. Nearly four-fifths of BGI's assets under management come from low-fee indexed funds.
Rather, observers expect Barclays PLC to keep a majority stake in the company but use a partial IPO or perhaps even a private sale as a way of realizing some of the bank's own capital and giving senior management a piece of the business.
Given that valuations for money managers currently are higher than for banks, it might not be a bad idea. "If the goal were to get capital, this would be a good time to do it," said Ezra Zask, managing director, Berkshire Capital Corp., New York.
But Ms. Dunn said attracting outside investors was "not the purpose of the holding company. The purpose is to create a separate compensation structure and separate governance for BGI."
One former Barclays insider said it was likely BGI would look to buy an active manager to boost profits. BGI earned net operating profits of 43 million ($69 million), down 9 million from 1998.
Profits were dragged down by a doubling in internal investments to 28 million, primarily in the quantitative product research and development area and in its new exchange-traded funds in the United States and Canada. Net fees and commissions, however, rose 46.5% to 318 million.
Not a good fit
But other observers said a traditional active manager would not fit well into BGI's heavily quantitative culture, and few marriages between active and passive managers have worked well. Rather, sources said, BGI might try to boost its existing active quantitative business, which managed $165 billion as of year-end 1999, up 21% from the previous year.
"If an organization like PanAgora Asset Management were to come on the market, it would be an ideal fit," one source said.
Ms. Dunn said BGI is starting to reap rewards from a partnership with Nikko Group, which now manages 80 billion ($731 million) in investment trust assets. It also has won new quantitative currency and active fixed-income accounts in the United States, and picked up five new quantitative equity mandates in the United Kingdom, she said.
BGI continues to build its role managing money for the bank's wealth management and retail businesses, Ms. Dunn said. BGI now manages $30 billion for those units. And BGI's exchanged-traded funds -- now with 17 running and 48 in registration -- have the potential to become very big, observers believe.