MENOMONEE FALLS, Wis. - Identifying the heir apparent to Richard Strong, the mercurial chairman of Strong Capital Management Inc., has gotten even tougher now that leading candidate Bradley C. Tank is gone.
Mr. Tank, director of fixed income and member of the five-person office of the chairman, was abruptly shown the door late last month because of poor performance of the company's core bond products. Jeffrey Koch, a senior bond portfolio manager, also left.
Industry sources said the departures were terminations. The company's official line is: "The departure of our bond managers was a mutual decision," spokeswoman Stephanie Truog said.
Said one recruiter close to the company, who declined to be identified: "There really is no one left there to lead the company. There's no one to take them forward, especially with Brad Tank gone. Bonds have been carrying the place, and now they're in the toilet. Bonds were the tail that wagged the dog at Strong."
In a letter to clients, Mr. Strong said, "At the present time, we at Strong are facing up to the need for change and are making organizational changes that we believe will put us in a more competitive position going forward."
Mr. Strong declined to be interviewed for this story. Mr. Tank did not return calls to his home.
"I was very surprised about Brad Tank's departure," said one recruiter based in the Midwest, who preferred anonymity. "He was a part of the inner circle, a Milwaukee boy and such a prominent figure in the company. He was widely regarded as the heir apparent. But what's strange is that I have heard absolutely nothing about Brad's leaving out on the street."
Added consultant Paul Schaefer, formerly of Capital Resource Advisors, Mill Valley, Calif.: "Brad Tank was the fair-haired boy. He was brought in to start the bond business ... Not only was he running the fixed-income investments, but also ran the institutional business for a time. He was Dick's guy and very loyal."
Messrs. Tank's and Koch's terminations were performance-related, said Jay N. Mueller, Strong's economist and interim head of the taxable fixed-income department.
"The recent performance in some products, particularly those that were credit-sensitive, was not to our expectations or the expectations of our clients. We have an obligation to improve and to put up better results, so that's why the changes were made," said Mr. Mueller.
Composite returns of institutional bond separate accounts, which Mr. Tank managed or oversaw, were in the seventh decile for the six months and the year ended June 30, according to Pensions & Investments' Performance Evaluation Report. Those same accounts were in the third decile for the three- and five-year periods ended June 30.
Mr. Tank's termination has left the institutional marketplace puzzled, wondering who will take over if and when Mr. Strong sells his equity, as company insiders say is planned.
Strong spokeswoman Ms. Truog said the company "is run by committee." She added that the "office of the chairman has not skipped a beat" since Mr. Tank's departure.
Many industry observers would disagree with Ms. Truog's characterization.
"Have you ever seen their office up near Milwaukee? It's like a castle, and Dick runs that company like a kingdom. Everyone I talk to in the industry says that about Strong Capital," said a New York executive recruiter, who requested anonymity.
Mr. Strong's successor has a big job ahead of him or her, fixing a future course for a firm with $46 billion in mainly retail mutual fund assets, a bundled 401(k) business, a fledgling high-net-worth effort and $3 billion-plus in institutional separate account assets.
As a retail firm, Strong has to conquer some institutional consultant and client prejudices.
Still, institutional assets accounted for more than 16% - $7.6 billion - of the $46 billion in assets Strong managed as of Dec. 31. Defined contribution assets have been declining, however, dropping to $4 billion as of Dec. 31, 2001, from $6.6 billion Dec. 31, 1999.
Strategy consultants like Ward Harris, managing principal of McHenry Consulting Group LLC, Berkeley, Calif., said they've been hearing that Strong is considering its future in the 401(k) plan market because of its low asset totals.
"They just haven't hit real scale in the 401(k) plan business," Mr. Harris said. One needed component, according to Mr. Harris, is a strategic distribution alliance.
Another reason for slow asset growth is that sales, marketing and distribution are where Strong has experienced the highest staff turnover, said recruiter Alvin Spector, a Chicago partner at Ray & Berndtson Inc.
"It's a challenging environment. Dick (Strong) has a philosophy about how he manages money and people. He demands excellence and holds out a bar that's very high. He expects people to achieve their potential or be gone. Dick is more focused on performance, money management and product than on marketing and distribution. I think some people may get frustrated with this," Mr. Spector said.
Rick Miller contributed to this story.