NEW YORK - There seems to be no clear winner in the integration of Deutsche Asset Management and Zurich Scudder Investments Inc.
Deutsche executives wielded a sharp knife after analyzing the investment strategies, marketing and client services and operations thrown together by Frankfurt-based Deutsche Bank AG's acquisition of the U.S. investment business of Zurich Financial Services AG, Zurich. The $2.5 billion deal will close next month.
"We moved faster and more thoughtfully than most people in integrating the two companies. We promised to rationalize and not pretend, and to involve Zurich Scudder in the decisions. We eliminated points of conflict, built credibility with Scudder people by working with them and looked for objective best practices," said Dean Barr, global chief investment officer for the private client asset management unit of Deutsche Bank.
The result will be an organization 10% to 20% lighter across all areas than the 8,000 now employed at both firms. An even mix of Deutsche and Zurich Scudder managers will be in charge of major midlevel functions for investment management and institutional sales and marketing. Most of the Zurich Scudder retail mutual fund sales and marketing teams will retain their titles and functions in a new headquarters in Chicago, moving from Boston and other U.S. locations.
An outsider - William N. Shiebler, retired since 1999 from Putnam Mutual Funds, Boston, - was appointed to fill the new position of chief executive officer of Deutsche Asset Management in the Americas. Mr. Shiebler reports to Thomas Hughes, president of Deutsche Asset Management, the global entity.
Sources said Deutsche Asset Management now is searching for a CEO for Europe, who will perform a similar role.
The firm now boasts a new global investment platform for the private client asset management unit. It is headed by Mr. Barr and consists of nine global product groups, three regional CIOs for all clients, three private client CIOs, and the investment solutions group, including research, global pension strategies, economists, global transition management and global securities lending.
No investment strategies were eliminated, but Deutsche did cherry-pick the best managers. Mr. Barr said there is now "one team managing each equity strategy and one team managing each fixed-income strategy." The same teams will manage both separate and commingled accounts and mutual fund versions of the strategy. Of 110 mutual funds, 15 will be folded into other funds or eliminated.
On the global level for equities, Deutsche staffers snared many top spots. Karl Sternberg, former head of global active equity at Deutsche, heads global active equity and will supervise the non-U.S. equity teams. Joe deSantis, former head of equity portfolio management at Zurich Scudder, heads the U.S. teams. Deutsche staffers heading other global level teams are: James Creighton, passive equity; Josh Feuerman, global quantitative equity; Janet Campagna, global asset allocation; Oliver Behrens, global structured products; John Burgess, cash management; and Josh Weinrich, global alternative investments.
Deutsche fixed-income managers also were assigned to following global positions: Axel Benkner, global chief investment officer for fixed income; Paul Berrmina, head of global institutional fixed income; and Eric Kersh, fixed-income CIO for the Americas.
Philadelphia will become the new headquarters for active fixed-income strategies, while New York will be home to specialty, passive and quantitative strategies. Almost all equity management also will be based in New York; a few portfolio managers will remain in Boston, Mr. Barr said. Similar winnowing of investment staff will take place in Australia, Japan and Germany, said Mr. Barr.
Mr. Barr said the new organization will provide complete coverage of the investment spectrum, now that Deutsche has agreed to purchase RREEF (see accompanying story), except large-cap aggressive growth equities, which he expects Deutsche to obtain through acquisition of another company in a few months.
Zurich Scudder's Chicago office will become the U.S. headquarters of marketing and distribution for retail mutual funds, headed by Mark Casady, who held the same position at Zurich Scudder. Ross Youngman, Deutsche's head of retail mutual funds, was assigned to special projects and will remain with the firm.
Richard Goldman will head the U.S. institutional business. He reorganized marketing client service and sales into three channels - corporate, public and financial institutions.
Victor Hymes, who headed Zurich Scudder's institutional group, decided not to accept an offer to become head of client service.
The combined firm will manage $890 billion worldwide, with about $630 billion coming from Deutsche and $260 billion from Zurich Scudder. About $470 billion will be managed in the Americas, of which about $310 billion is from institutional clients.
"I think they're thinking about it the right way, aligning the business by customer segment," said Paul Schaeffer, executive vice president of the business strategies group at Capital Resource Advisors, Mill Valley, Calif. "They are trying to stretch the investment expertise over a wider range of channels, which is smart."
"I've been impressed by their decisiveness," said T. Neil Bathon, president of Financial Research Corp., Boston, a mutual fund consultant.
But for many institutional clients and their consultants, the changes are coming too fast and represent one merger too many for the old Scudder, Stevens & Clark Inc. entity they originally hired. Scudder was combined with Kemper Financial Services Inc. after being acquired by Zurich Financial Services in 1997. On the other side of the deal, Deutsche Bank in recent years has swallowed Morgan Grenfell Asset Management and Bankers Trust Co., which had acquired Alex. Brown & Co.
Many pension funds terminated Zurich Scudder because of concerns over organizational stability and, in some cases, poor performance. The list includes the $54 billion New York City Retirement Funds for $846 million in international equities; the $39 billion Minnesota State Board of Investments, St. Paul, for $300 million in international equities; the $1.1 billion Fort Worth (Texas) Employees Retirement Fund, for $100 million in international growth equities; the $1.2 billion Miami Firefighters and Police Retirement Trust, for $91 million in core bonds; and the $250 million endowment of Auburn University, Auburn, Ala., for $165 million in emerging market equities.
Jeff Nipp, director of investment manager research at Watson Wyatt Investment Consulting, Atlanta, is beginning to evaluate the new Deutsche strategies, teams and processes.
"About all you can do is wait and see. Everyone has them on watch lists," Mr. Nipp said. "It's really not clear what they're going to do. We know what they've said on paper, but how it will really work in the nitty-gritty is not clear. They're combining teams and managers, which will change the investment product itself."
Mr. Barr stressed the client losses have not been from the Deutsche side of the house. Deutsche brought in 75 new clients in 2001, and 75 others gave the firm more money in new mandates for total net new business last year of $30 billion, mainly for active strategies. Deutsche and Zurich Scudder only have 30 institutional clients in common from a universe of more than 1,000.
Added Russel Kinnel, director of fund analysis at Morningstar Inc., Chicago: "Post-merger, they talk a really good game, but there's a real downside. All these manager changes do not create an ideal environment to run money or for shareholders. It's hard to argue that these changes are in the best interests of shareholders."