NEW YORK - Credit Suisse Asset Management LLC lost more than half of its U.S. institutional assets under management last year because of poor performance and high staff turnover.
U.S. institutional assets dropped 53.8% to $11.5 billion as of Dec. 31, from $24.9 billion a year earlier.
The man on whom CSAM is pinning its turnaround hopes is Michael E. Kenneally, whose first job as the new global chief executive officer of Credit Suisse Asset Management, New York, will be to boost the performance of the company's wide array of investment strategies.
That's a directive straight from Mr. Kenneally's new boss, Jeffrey M. Peek, who in January 2002 became vice chairman of the money manager's parent company, Credit Suisse First Boston, and head of its financial services division, which includes CSAM.
Mr. Peek said he's confident he has found the right investment Mr. Fix-It. It is Mr. Kenneally's investment background that most interests Mr. Peek.
"I wanted someone with investment experience, who had experience managing people who manage investments. I needed someone who has been successful, who would be credible," Mr. Peek said. Mr. Kenneally was chief investment officer at Banc of America Capital Management, New York, which has $310 billion under management. He also was president of investment management and CIO of Bank of America.
"We have a global platform, and Mike's job will be to look for ways to improve its efficiency. ... It all starts with performance, and if we can bring that, then it will be easy to move into different distribution channels," Mr. Peek said.
It's an unusual mission for a CEO, said recruiters, especially when there's a global chief investment officer - Laurence R. Smith - already in place. Money management industry observers said they do not expect Mr. Smith will remain long after Mr. Kenneally's arrival April 1.
Said one recruiter, who knows Credit Suisse Asset Management well but requested anonymity: "(Mr.) Kenneally is in a really tough spot. Maybe (he) does need to focus on the investment management side of the job, but the CEO's role really is a lot more complicated. His management experience is not that strong and this is not just a U.S. job, it's global ..."
Mr. Kenneally couldn't be reached for comment.
Vacancy since 2001
CSAM has been without a dedicated global CEO since Phillip Colebatch quit in December 2001.
And James McCaughan, CEO of the Americas, left in February 2002, just after Mr. Peek joined the firm. Mr. Peek said Mr. McCaughan's departure was mutually agreed upon. Mr. Smith, the New York-based global chief investment officer, was named acting CEO for CSAM Americas.
Poor performance, staff departures, client terminations and the drop in assets under management won't be easy for Mr. Kenneally to fix.
"CSAM just is not making any progress. There's a dog's breakfast of different organizations around the globe not talking to each other that should be. There's low morale, no leadership - it's just so unstable," said one industry observer who requested anonymity.
Performance has been the primary problem, as even Mr. Peek acknowledged. Annualized composite separate account performance as of Dec. 31 in three of the four strategies Credit Suisse Asset Management reports to PIPER were at or near the bottom decile among peer institutional managers.
The core fixed-income strategy returned 3% for the quarter ended Dec. 31, placing it in the first decile, according to PIPER, a management performance database owned by Pensions & Investments. But it dropped to the 10th decile for one year, three years and five years, and was in the ninth decile for 10 years, with 9.9%.
The manager's domestic high-yield strategy returned 4.6% for the quarter, placing it in the eighth decile. It ranked in the seventh decile for the year, eighth for three years, sixth for five years, then improved dramatically for 10 years - jumping to the first decile with an 8.2% return.
The international focus equity strategy was in the eighth decile for the quarter and year, and seventh for five years. The strategy does not have a 10-year record.
Credit Suisse Asset Management's one bright spot in PIPER is its select equity strategy. A return of 8.4% for the quarter earned it a second-decile ranking. It dropped to the fourth decile for one year, then back up to the second decile for three and five years. The strategy does not have a 10-year record.
Recruiters say it took Mr. Peek an unusually long time to replace Mr. Colebatch. Those interviewed for this story named three senior investment executives who had turned down the job.
Mr. Peek said he traditionally has been slow to hire people for key positions. "It took me eight months to recruit Bob Doll (as global CIO) when I was at Merrill," Mr. Peek quipped. Mr. Peek was president of the asset management division of Merrill Lynch & Co., New York, before joining Credit Suisse.
As for turnover, recruiters ticked off some of the more notable senior staff departures from CSAM in the last year:
* Greg Diliberto, head of U.S. core fixed-income, left to manage internal bond portfolios at Citigroup Asset Management, New York. He left Citigroup about a month ago, said recruiters, when a restructuring eliminated his job.
* Jose "Tony" Rodriguez, head of U.S. corporate bonds, became head of fixed income at U.S. Bancorp Asset Management, Minneapolis.
* Christopher F. Corapi, managing director and head of U.S. equity research, moved to Federated Investors, Pittsburgh, where he is a senior vice president and head of equities.
* Bruce Pflug, director of consultant development, became a senior vice president and a consultant relationship manager at Pacific Investment Management Co., Newport Beach, Calif.
Performance and personnel problems brought institutional assets down precipitously, but global assets dropped just 2.1% to $297.4 billion at year-end 2002, compared with $303.7 billion the prior year. That's because more than 75% of the firm's assets are managed outside the United States, and appreciated strongly in other currencies, compared to the U.S. dollar, said George Jamgochian, head of sales and marketing. Expressed in Swiss francs, CSAM's total global assets dropped between 16% and 17%, Mr. Jamgochian said.
Mr. Jamgochian said the company brought in $8 billion in new U.S. institutional client mandates in 2002, mainly as a subadviser for other managers or in specialized collateralized bond obligations assignments. Still, he acknowledged client terminations were high last year.
Among the terminations by U.S. clients:
* The $131 billion California Public Employees' Retirement System, Sacramento, yanked a $1.4 billion currency overlay strategy last year for performance reasons;
* The $26 billion Maryland State Retirement & Pension System, Baltimore, terminated CSAM from a $833 million active domestic fixed-income assignment in July; and
* The $600 million Fairfax County (Va.) Uniformed Retirement System and the $535 million Fairfax County Police System both terminated CSAM for management of active domestic core-plus mandates of $100 million and $80 million, respectively. Mr. Diliberto's departure was the reason for the terminations, said plan officials.
U.S. clients that have placed CSAM on watch include the $1.1 billion Oklahoma Firefighters' Pension & Retirement System, Oklahoma City, for a $50 million active international equity account, and the $1.5 billion San Jose (Calif.) Police & Fire Retirement System, for a $115 million global bond portfolio.