KANSAS CITY, Mo. - American Century Investment Management is poised to reshape the jobs of president and chief investment officer and possibly others.
Sources, however, say more than cosmetic surgery is needed, particularly if a portion of the company's value equity team - which manages some of the firm's best performing strategies - goes ahead with a rumored walkout.
The departures last month of two key executives appear to be prompting the change. Randall Merk, president and CIO, left to become president of Charles Schwab Investment Management in San Francisco, and has not yet been replaced. C. Kim Goodwin, CIO of growth equities, left to become CIO of equities at State Street Research and Management Co., Boston.
Robert C. Puff Jr., ACIM's chairman - who returned from semi-retirement to become interim CIO - said he has made a proposal to American Century's executive committee to restructure the jobs. "We're dealing with the unusual confluence of the departure of a couple of senior investment people," Mr. Puff said. "Some elements of the leadership are going to change.
"We will reshape the job of CIO and will stress different things than we have in the past. We're looking for other leadership qualities beyond the investment piece," Mr. Puff said. He said he couldn't be more specific because "it is just too early in the process."
"A couple of key chips have fallen into place ... and I'm confident that we will have a new structure in place by the beginning of October. We're moving as expeditiously as we can."
Company executives will look first to promote from within, Mr. Puff said. Sources, however, said they already tried to do that and failed.
CIO offer rejected
Sources said Ms. Goodwin was offered the CIO job, but wouldn't take it unless James Stowers III, co-chairman and co-CIO of growth equities, agreed not to interfere. Mr. Stowers refused those terms, the sources said, and Ms. Goodwin, who had been interviewing with other money management firms, left.
But Mr. Puff told a different story: "Kim was interested in Randy's job, but she wasn't going to get it. Her departure was not a surprise to me. You'll have to ask her, but I know she had been thinking about other things for some time. She wanted more control than she could get here."
Ms. Goodwin did not return calls seeking comment.
Some sources agreed with Mr. Puff that process - not Mr. Stowers - has prompted the departure of many portfolio managers over the years.
"The (Stowers) family believes very strongly in a process that is very rigid, and they want people to adhere to it religiously. ... Portfolio managers want more autonomy - especially given the current mania for hedge funds and absolute-return strategies - and they aren't going to get it at American Century."
Another problem is that American Century is run as a family business, despite a 45% ownership stake by J.P. Morgan Chase Corp., New York. James E. Stowers Jr., who founded the company in 1958, retired from day-to-day activities at the firm and now devotes most of his time - and his wealth - to the Stowers Institute for Medical Research. He founded the institute in 1994 to find a cure for cancer and other diseases.
Mr. Stowers and his wife, Virginia, have endowed the institute with billions of dollars worth of American Century Cos. common stock. The problem? "Stock isn't much good. Mr. Stowers needs cash to provide the operating capital for the institute," said one source close to the company. In fact, the 1998 sale of 45% of American Century to J.P. Morgan provided the institute with its first cash influx, according to company documents.
An executive recruiter who declined to be identified said, "No one knows why the Stowers ... are reinserting themselves back into the business in a big way, on day-to-day decision-making. It's kind of driving people nuts. The theory is that the institute is driving that company."
Neither the elder Mr. Stowers nor his son was available for comment. Mr. Puff, however, was adamant that "there is no relationship between the foundation's needs and company compensation."
Mr. Puff said the company is not entirely controlled by the Stowers; they share decision-making with an executive committee of senior executives, including Mr. Puff. He also said ACIM is strongly committed to spreading company ownership among senior executives, estimating employees hold about 10% of the company.
Open to talent raids
Still, executive recruiters say American Century is vulnerable to talent raids, particularly of its value managers. Their screening process - less rigid that the process used by the growth stock teams - has led to strong performance in the current market cycle. Rumors persist that some or all of the value team has one foot out the door.
Mr. Puff said talent raids "are not new for us. Any time a strategy does well, the recruiters start calling. ... This happened before with domestic growth and international equity."
Institutional consultants have put American Century on watch due to personnel turnover but are not too worried.
Phil Kosmala, manager of investment research at DiMeo Schneider & Associates LLC, Chicago, said some of the consultant's defined contribution plan clients are using the American Century Ultra and Select Funds. Both growth stock funds fell within Ms. Goodwin's bailiwick, but she didn't manage them.
"Knowing that the process is fundamental and bottom-up, we don't think the strategy will change with the CIO's departure, but we have raised a flag for clients and they are on watch because of turnover," Mr. Kosmala said.
Executive recruiter Glenn Mills Buggy, managing director and partner in the asset and wealth management practice of Whitehead Mann Inc., New York, said he visited American Century a few weeks ago and walked away with two searches for institutional sales people.
"I got the impression that American Century is simply retooling, doing only what they need to do," Mr. Buggy said. "They have had great success with mutual funds and as part of the process of maturation, are finding that they can't be a one-trick pony. They are totally committed to institutional expansion. I really didn't see them flinch in the face of losing assets and a couple of people. I saw nothing to alarm me. I would not count them out."