NEWPORT BEACH, Calif. -- Collins Associates Inc. has lost half of its money under management as major corporate pension fund clients have departed.
The hedge fund firm, specializing in funds of funds, also has suffered the departure of six key investment staffers; a failed sale; and a management restructuring.
General Electric Co., BP Amoco Corp., and Ameritech Corp. (now SBC Communications Inc.) pulled their pension fund money from the firm, according to Budge Collins, director of client services and marketing at the Newport Beach-based firm. IBM Corp. yanked almost all of its pension fund's allocation, he added.
"Our clients started to leave in droves," Mr. Collins added, blaming poor performance.
Clients have withdrawn about $800 million to $900 million of the $1.5 billion Collins Associates managed, Mr. Collins said.
Four of the investment pros that left formed their own firm -- Pacific Alternative Asset Management Co., Irvine, Calif.
Jim Berens and Jane Buchan, two of the four, said their new firm offers strategies similar to those they managed at Collins Associates. So far they have been assigned about $300 million, some from former clients, with commitments of another $100 million, they said.
The other two who left to form PAAM are Judy Posnikoff and Bill Knight. All four are principals.
Mr. Berens, Ms. Buchan and Ms. Posnikoff said all four left separately and decided afterward to form Pacific Alternative Asset.
The sale of Collins Associates to EIM Group, also known as European Investment Management and based in Nyon, Switzerland, fell through at the end of January. Mr. Collins said he, Mr. Berens and Ms. Buchan had been negotiating with EIM executives since May 1999, when the European group approached him about the sale.
EIM uses a manager-of-managers approach in alternative investing; it controls $6 billion.
Arpad "Arki" Busson -- a European financier who dates supermodel Elle Macpherson and has a child with her, according to reports -- is chairman and controlling shareholder of EIM.
The deal was to have closed before the end of 1999, but the closing was extended a number of times until the sale was canceled.
Mr. Busson couldn't be reached at EIM's New York office.
After the collapse of the sale, Mr. Collins sought to reorganize his firm.
The restructuring, initially announced toward the end of February, kept the existing investment professionals in place, with Mr. Berens and Ms. Buchan continuing as co-chief investment officers.
But Mr. Collins withdrew that plan within a few days.
He ultimately brought in two people as chief executives.
Michael Earley, a former turnaround executive consultant, was made president and chief executive officer to run the firm. Mr. Earley most recently was a principal at Triton Group Management, a San Diego-based management consulting firm he co-founded.
Richard H. Moskowitz was hired as CIO to oversee the fund-of-funds strategies. Mr. Moskowitz was a partner and CIO at McKinsey & Co.
The hiring of Mr. Moskowitz was viewed by Mr. Collins and others as a demotion of Mr. Berens and Ms. Buchan, who would have to report to him.
Messrs. Collins and Moskowitz said the firm has been troubled by poor performance in 1998 and 1999, which caused clients to leave. They blamed the Buchan-Berens team for the poor performance.
Messrs. Collins and Moskowitz cited "manager blowups" as a cause of poor performance.
In 1994, Collins lost 100% of its investment in mortgage-backed securities arbitrage in the failure of Askin Capital Management Inc. and 40% of its investment in Japanese convertible bond arbitrage with another firm, according to Mr. Collins.
In 1998, it lost 100% of its corporate bond arbitrage investments with another firm.
In 1999, it lost 88% of its investments in foreign government bond arbitrage with another firm.
Last February, it lost part of its investments in volatility arbitrage with another firm.
Collins used some 55 market-neutral managers in its clients' portfolios, according to Mr. Moskowitz.
Part of the team
Mr. Collins, although he blamed the client departures on poor performance, said, "We very much hoped Jane (Buchan) and Jim (Berens) would remain with the company and be part of the team."
He added, "There were ongoing discussions on compensation and equity ownership." Ms. Buchan and Mr. Berens "would have the same ownership share and be compensated on the same basis as Rick (Moskowitz)."
Mr. Berens and Ms. Buchan said Mr. Collins never presented a final deal for them to sign.
Uncertain of the terms and the unexpected hiring of Mr. Mos-kowitz, they departed.
Mr. Berens and Ms. Buchan said clients left because of the uncertainty about the sale of the firm and the management reorganization.
The pension fund clients that withdrew couldn't be reached for comment.
According to Mr. Collins, the compounded annualized market-neutral performance from the inception of their accounts was, for:
* General Electric, which had $30 million invested, 3.1%;
* BP Amoco, $15 million, 1.7%;
* Ameritech, $211 million, 4.2%; and
* IBM, $80 million, 3.7%.
Mr. Collins said performance was particularly bad for 1998 and 1999.
Was performance OK?
Mr. Berens and Ms. Buchan and other sources said market neutral, Morgan Stanley Capital International Europe Australasia Far East index, and low-beta hedge fund strategies -- which accounted for most of Collins Associates' assets -- outperformed their benchmarks in 1999.
"Performance was strong and continued to be strong," Ms. Buchan said.
Hal Kroeger, who is involved in a joint venture with Collins Associates to market to high-net-worth clients, said, "I don't agree with Budge about performance."
Mr. Kroeger operates a family office in St. Louis, which is also a client of Collins.
"The performance has been spectacular," he said. "Clients felt Collins Associates was one of the top performers" in categories like market neutral, run by Ms. Buchan, and directional strategies, run by Mr. Berens.
Mr. Kroeger said clients might have been worried about organizational issues with the sale and the falling out of key people afterward.
Market neutral accounted for about $750 million of the $1.5 billion Collins had under management, before clients began withdrawing, Mr. Collins said.
Todd Pulvino, an assistant professor in finance at the Kellogg Graduate School of Management, Northwestern University, Evanston, Ill., a consultant to Collins, resigned also.
He said he evaluated merger arbitrage managers, working with Ms. Buchan on market neutral. When she left, he decided to leave.
The sixth investment professional to leave was Keith Pivit, who was a client service contact and had been a director. Mr. Pivit could not be reached for comment.
Mr. Collins said the firm now will concentrate on low-beta market-neutral strategies and directional long-short strategies.
"We will be making changes in market neutral," Mr. Moskowitz said. He said he might change about 25 of the 55 market-neutral managers Collins uses. He also is searching for senior investment people to replace those who left.