ATLANTA - While establishing its growth factory in Louisville, Ky., INVESCO Institutional looks to improve its fortunes on the value equity front - its traditional bread and butter.
After acquiring National Asset Management last spring, INVESCO set about building its national growth and core equity headquarters in Louisville, home of National Asset Management, now known as INVESCO-National Asset Management. The previous year, INVESCO moved its institutional fixed-income operation to Louisville. Now, about $72 billion of INVESCO Institutional's $117 billion in assets under management are run in Louisville. Atlanta remains the headquarters for domestic value equities and international equities, while New York is the base for structured equity and private equity investment management.
Boosted by the acquisition of National, institutional assets at INVESCO climbed 17% in 2001 to $117 billion. Without the National acquisition, assets dropped $500 million as market depreciation caused a drop of $3.1 billion. However, to offset that, the firm had a record year in terms of gross sales in 2001, taking in $14 billion in new business, said Frank Keeler, the new head of marketing, sales and relationship management.
INVESCO spokesman Bill Hensel said it made sense to establish the growth and core equity headquarters in Louisville because INVESCO-National "has a bigger shop and a great track record." National brought $17.7 billion in core and growth equity assets to INVESCO Institutional, giving the firm about $20 billion in total core and growth equity.
A key to joining INVESCO, said Carl Hafele, chief executive officer at INVESCO-National, was that National was allowed to keep the firm's philosophy, process and people. Backed by INVESCO's marketing and distribution capabilities, Mr. Hafele would like to build the core and growth equity shop into a growth engine. "We'd like to put another digit on the assets under management," he said.
INVESCO-National runs five core and growth equity special accounts, and Mr. Hafele said he hopes to expand the offerings in the future. Next up is adding some research analysts, which they plan to do this year.
While the growth side of the equation is a build, the value equity side of the shop is a bit of a rebuild as performance has struggled in recent years. Holly Deem joined the firm in June 2001 as chief executive officer of INVESCO Capital Management, the value equity arm of INVESCO Institutional. The Atlanta-based unit manages about $26 billion.
The two largest separate accounts, the large-cap value equity strategy and the fundamental value strategy, were fifth and sixth decile performers last year in the large-cap value universe, according to Pensions & Investments' Performance Evaluation Report. The large-cap value account returned -5.6% while the fundamental value account returned -2.9%.
For the three- and five-year periods ended Dec. 31, the large-cap value strategy returned an annualized -4.9% and -2.4%, respectively, placing it in the ninth decile for each. The fundamental value portfolio returned 4.6% and 10.2%, respectively.
Clients are noticing. Among large-cap value accounts the firm has lost are a $43 million portfolio with the $100 million pension fund of Cone Mills Corp., Greensboro, N.C., and a $100 million portfolio with the $225 million endowment of St. Lawrence University, Canton, N.Y.
Jack Wildermuth, principal with consultant Stratford Advisory Group, Chicago, said INVESCO's value portfolios suffered from falling "off message."
Ms. Deem said the value portfolios enjoyed solid performance in 2001 and the performance was consistent with how the portfolios were designed. She said there have been no changes to the philosophy or process and that the portfolios "did what they were diagnostically set up to do."
Ms. Deem said they are always looking to improve the investment management business and will continue to do so by adding research staff and launching new portfolios. On the horizon is a new concentrated large-cap value mandate, which takes the best ideas from the two existing large-cap approaches. They also intend to develop midcap, small-cap, and all-cap portfolios, said Ms. Deem, although a timeline has not been set.
Mr. Wildermuth and other consultants said the challenge for INVESCO is integrating all of its parts into cohesive units.
"They've grown by acquisition, so as they keep adding stuff, they have to figure out what to focus on," said Jeff Nipp, consultant with Watson Wyatt Worldwide, Atlanta.
Mr. Wildermuth said the integration of different acquisitions has hurt performance in some cases as the firm struggles with consistency of management issues. "The marketing staff has to be smart about which portfolios they bring in front of consultants," said Mr. Wildermuth, saying about half of the firm's institutional offerings are suitable for institutions because they have consistent management teams, messages and numbers.
Making the transition
Ms. Deem said the integration of mergers and acquisitions is a positive for clients if the integration is managed properly because of additional investment capabilities and resources it can provide.
In recent years, INVESCO Institutional has been making the transition from a first- to a second-generation money management firm, said Ms. Deem, and they have been focused on making that transition smooth.
Among the changes, in the past year or so, John Rogers took over as CEO, Ms. Deem was hired as head of the value equity group, Mr. Hafele came with National, and Mr. Keeler was hired to run the marketing group.
In his new job, Mr. Keeler replaced Sam DeKinder, who stepped down from day-to-day management to focus on broadening the firm's relationships with its largest customers. Mr. Keeler was head of INVESCO Northeast.
In another change, Tony Cox is heading up the newly expanded financial institutions group, replacing Muffet Arroll, who took a position with AMVESCAP. Mr. Cox was head of defined contribution alliance sales at INVESCO. In his new position, he will focus on establishing relationships with third-party distributors including banks, brokerage firms and insurance companies.