CHICAGO -- Gary P. Brinson will retire from money management later this year as part of a restructuring of UBS Asset Management.
In the restructuring, Brinson Partners Inc. and Phillips & Drew Ltd. will be combined.
UBS AG, the Zurich-based parent company, will scrap use of the Brinson name internationally, said Peter Wuffli, chief executive officer of UBS Asset Management, who is based in Chicago.
Brinson Partners got pigeonholed as a value manager for equities when UBS tried to brand Brinson worldwide, Mr. Wuffli said. And the Brinson value team has underperformed its benchmarks at a time when value is tremendously out of favor.
UBS will diversify equity styles by nurturing its existing growth-oriented investment team at Brinson Partners' New York office, Mr. Wuffli said.
Still, Brinson Partners, Chicago, and Phillips & Drew, London, will be the cornerstones of UBS' effort to rebuild its beleaguered global money management organization, said Mr. Brinson and other UBS executives.
Both units, however, will lose their independence, as UBS Asset Management fully integrates their value investment approaches, and other asset management portfolios' staffs, although they will keep their existing offices.
The combination of Brinson Partners and Phillips & Drew was precipitated by the departure of Tony Dye as chief investment officer of Phillips & Drew, although UBS executives said they had been working toward the goal of integrating the firms.
UBS Asset Management has 538 billion Swiss francs ($336 billion) in total assets under management.
Mr. Brinson, chairman of UBS Asset Management, said, however, he might not have announced his own retirement so soon without the departure of Mr. Dye.
Mr. Brinson said both he and Mr. Dye decided separately and voluntarily to retire. Mr. Brinson said his reason was the overwhelming desire to spend time with his family. He plans to keep his main residence in the Chicago area. Mr. Brinson said he will stay on to complete the transition and retire toward the end of this year.
Not sticking around
He said he will leave the money management business entirely and has no plans to remain as a consultant to UBS Asset Management or to get involved in any other asset management venture.
With the announcement, Mr. Brinson is giving up his title as chief investment officer.
Jeff Diermeier was named CIO of UBS Asset Management. Mr. Diermeier, who was deputy CIO at Brinson, will continue to be based in Chicago. He will report to Messrs. Wuffli and Brinson.
Robin Apps, who was head of investment and client teams at Phillips & Drew, will be deputy CIO of UBS Asset Management and remain in London.
Mr. Diermeier said both Brinson and Phillips & Drew have similar value approaches.
Brinson manages some $300 billion, including some $82 billion for tax-exempt clients. Phillips & Drew has some $6 billion, including about $1 billion in tax-exempt assets.
Unfair paint job
Mr. Brinson believes his firm unfairly got painted into a corner as a value manager.
Although 38% of Brinson Partners' assets under management are principally in value equities that have underperformed severely, and another 20% in balanced portfolios, he noted the firm manages other asset classes that have done well, including fixed income, emerging markets, short-term, private equity, real estate and timberland.
The Brinson growth team in New York, led by Wayne Thornborough, will remain in place, under UBS Asset Management. It has $7 billion under management.
The growth strategy, which had been part of Union Bank of Switzerland's New York-based asset management, became part of Brinson when Swiss Bank Corp., then Brinson's parent, merged with UBS in 1998 to form United Bank of Switzerland.
Mr. Brinson said the growth strategy has performed well.
In 1999, UBS Brinson's large-cap growth equity strategy outperformed the median manager, returning 34.6% and ranking in the fourth decile, according to Pensions & Invesmtents Performance Evaluation Reports.
Its small-cap growth strategy underperformed peers, returning 46.8% and ranking in the sixth decile.
In value equities, UBS Brinson had an awful year. Its large-cap value strategy returned -3.8% and ranked in the 10th decile. Its small-cap value strategy returned 2.9% and ranked in the seventh decile.
"We do not see inconsistencies between expanding our growth capacity in equities" and maintaining the value style of Brinson and Phillips & Drew, Mr. Wuffli added.
Both Messrs. Wuffli and Diermeier stressed UBS Asset Management will maintain the commitment to value-oriented equities.
Losing its way
Consultants and competitors criticized UBS Asset Management for being so focused on a single style of investment and for its slow effort to build the global money management capabilities to which it aspired.
"A lot of these firms that try to become global organizations through buyouts and acquisitions lose their way and aren't successful," said Joseph Gieger, managing director, Lombard Odier International Portfolio Management Ltd., New York. Mr. Gieger left a marketing job at Brinson about six months ago.
He said UBS was slow to bring leadership to all of its units worldwide.
"You have a firm that lost its way, didn't know what culture it has, or where it's going," he added. "It will have a difficult road ahead."
A Geneva-based representative of an international firm of investment consultants, who asked not to be identified, said, "UBS is a pretty universal bank so you would expect its asset management business to take a more style-neutral approach."
The firm's reliance on a single style of investment left it vulnerable to cyclical swings in markets. "For existing Brinson clients this merger does not bring anything new," the consultant said.
UBS' recently acquired Global Asset Management Ltd., London, will remain autonomous and will not be part of the new combination. Alan McFarlane, managing director of GAM's institutional business, will report to Mr. Wuffli.
UBS plans to make use of GAM by cross-selling its multimanager products to both the Brinson and Phillips & Drew existing institutional client bases. One of the key advantages of GAM is its multimanager business, which screens 5,000 mutual funds and enables its clients to gain a variety of investment styles, said Mr. Wuffli.
In turn, UBS Asset Management will attempt to sell Brinson and Phillips & Drew institutional money management abilities to GAM clients.
The UBS parent transferred GAM to UBS Asset Management in mid-February from the group's private banking division where it was first placed after it was bought last year.
GAM's business is built largely on sales to private clients and high-net-worth individuals.
In fact, one U.K. plan sponsor who did not want to be named said the plan trustees recently had knocked GAM off a selection list for a particular mandate, as its institutional business was considered to be too small.
At the end of February, GAM had assets under management of $15.1 billion with institutional business accounting for 31%, or $4.7 billion, according to David Duncan, GAM's director of institutional business.
Could be too late
Mr. Wuffli's decision to expand the growth style at UBS Asset Management might have come a little too late to prevent further client losses.
Both Brinson and Phillips & Drew have been struggling to retain clients -- who have become increasingly dissatisfied with the value managers' recent poor performance records.
Within the past few weeks, Phillips & Drew has lost two key U.K. clients, the 6 billion ($9.5 billion) Strathclyde Pension Fund, Glasgow, and the 15.9 billion Railways Pension Fund, London.
U.K.- and Swiss-based consultants warned further client losses were likely as the two businesses joined. One U.K.-based consultant said his firm had serious reservations and would encourage pension fund clients not to use the manager.
A Swiss-based consultant who would not be named said UBS had been losing business from Swiss pension funds since the merger with SBC in 1998. He said he did not have many Brinson clients on his books despite the money manager being well-known in the Swiss market.
"Small and medium-sized Swiss pension funds want a balanced manager who won't mess up. Of my clients that use (Brinson), most are not happy with the results they have been getting. Some are asking if it is time they looked elsewhere," he said.