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May 12, 2003 01:00 AM

U.K. public funds bail on Henderson Global

Poor performance, ownership question are making investors cautious

Benjamin Seeder
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    LONDON - Henderson Global Investors, in the process of being split off from Australian parent AMP Ltd., is losing major U.K. public fund clients as performance nose-dives and investor apprehension over changes at AMP grows.

    Henderson, one of the United Kingdom's largest money managers, has £100 billion ($160 billion) in assets under management.

    In the United States, where Henderson managed $1.58 billion for institutional tax-exempt clients as of Dec. 31, performance has been satisfactory - at least in real estate, which accounts for most of those assets, according to London investment consultants.

    While the firm's international equities performance has not been great, it no longer manages much in those asset classes for U.S. clients, said the consultant.

    "They really gave up that business last year, with the departure of Bruce Bockelman (director of institutional marketing)," said one source familiar with Henderson's business. "They are really just focusing on building a mutual funds business in those asset classes."

    In real estate, the firm maintains several U.S. clients, including the $12 billion Utah State Retirement System, the $26 billion Alaska Permanent Fund Public Trust, Juneau, and the $54 million Falmouth Contributory Retirement System, Falmouth, Mass.

    Bob Newman, executive director with the Utah State Retirement System, Salt Lake City, said the $12 billion system was "still happy" with its real estate investment with the firm.

    But across the group globally, the situation looks less positive.

    Uneasy investors

    According to AMP's 2002 annual results, institutional investors pulled a net A$3.8 billion ($2.44 billion) out of the firm in 2002. In 2001, investors placed a net A$17 billion with Henderson.

    A London investment consultant, who did not wish to be named, said the "bad news story" associated with Henderson is scaring potential investors and making existing ones uneasy. The firm is facing questions about its ownership, performance has dropped and key employees have left during the past two years.

    Arno Kitts, Henderson's director of institutional marketing, said in the United Kingdom the firm had added to its client numbers, although he did confirm inflows were down from previous years.

    "We are aware of the short-term underperformance, we are naturally disappointed with this. We are a firm with a top-down investment approach; we took a view on the market post-Sept. 11 (that economic conditions would move to slow recovery), and clearly our portfolios have been hurt by that," he said.

    But recent market movements, since the Iraq intervention, had improved the situation, Mr. Kitts said.

    Henderson is still being recommended by "the big four" consultants for mandates in U.K. equities and bonds, he said.

    The firm also was turning its focus to "new" asset classes where it has achieved some level of success, such as enhanced index funds and alternative investments, both of which are receiving increased attention from European schemes, he said.

    Henderson will be a separately listed company by the end of this year, under changes announced this month by Sydney-based AMP.

    But sources said it is likely Henderson will become a takeover target either before the listing - by a predator making an offer to AMP - or after.

    AMP announced the Henderson restructuring after its former CEO, Paul Bachelor, resigned over losses at the U.K. life operations. AMP will take a $1.5 billion writedown.

    The consultant said another problem is Henderson's gradual loss of its traditional balanced portfolio turf to specialists, as U.K. public schemes follow the trend away from balanced.

    "But Henderson doesn't have any real expertise in specialist areas to counter that, except for fixed income in the past few years, and that has some short-term problems," the consultant said.

    Lost four clients

    According to the Russell/Mellon CAPS Pooled Pension Fund Survey of U.K. institutional managers, only four of Henderson's 15 active stock and bond funds listed in the survey outperformed their assigned benchmarks for the 12 months ended March 31. The firm's U.K corporate bond fund ranked 65th out of 66 managers, according to Russell Mellon/CAPS.

    The company lost at least four pension fund clients in the past two months, mostly local authority schemes - a U.K. market segment that has been the firm's last bastion.

    The most recent loss was a £120 million global bond mandate from the £600 million IMI PLC Pension Fund, Birmingham, England, announced last week. Peter Flanagan, group pension manager, attributed the decision "partly to short-term performance" but mostly because the replacement firms "just looked better to the board."

    "They have outperformed as a manager during the long time we have used them. But I think we've had problems, especially in the U.S. credit side of the mandate over the past year. They were one of the managers that got caught up with Enron and WorldCom bonds," Mr. Flanagan said.

    Also this month, Henderson lost a £75 million bond mandate from the £693 million Bedfordshire County Council Pension Fund, Bedford, England. A spokesman for the council said the scheme was conducting a search for managers to replace Henderson. No reasons were given.

    In March, the firm lost a £100 million balanced portfolio from the £265 million London Borough of Kensington and Chelsea Pension Fund. A source familiar with the situation blamed the loss on Henderson's performance, problems with its administration services and ongoing turmoil at the company. Administrators at the pension scheme declined to comment.

    Richard McIndoe, finance director at the Strathclyde Pension Fund, Glasgow, Scotland, confirmed the £6 billion scheme was now reviewing its investment arrangements and had put Henderson's £250 million global bonds mandate out to tender. Henderson will be allowed to rebid, he said.

    The £420 million pension fund of the Fife County Council, Glenrothes, Scotland, said it restructured its balanced mandate with Henderson, changing it to a smaller U.K. equities contract.

    And the Edinburgh City Council, whose £1.5 billion pension scheme is restructuring its investments at the moment, is close to terminating Henderson's £80 million U.K. bonds mandate, said a source close to the scheme.

    Credit skills at Henderson have been well regarded since its 1998 merger with AMP Asset Management, when AMP Ltd acquired Henderson.

    "Fixed interest was a good corporate diversifier for Henderson; their abilities there rose during the time that their reputation for other asset classes like U.K. and global equities fell," said one asset consultant familiar with the firm.

    "Now we seem to be seeing a decline in their fixed-interest abilities, at least in the short term," said the consultant, who asked not to be named.

    "It is very difficult to say what this means; it is short-term performance. But when clients have a choice between Henderson and a better-performing rival whose parent isn't in turmoil and likely to hang a sale sign around the firm, then they're inclined to take the rival," the consultant said.

    Staff turnover

    The drop in performance was coupled with staff turnover that was caused, in part, by belt-tightening at Henderson's cash-strapped Australian parent.

    Among those who have left are Rupert Carnegie, a veteran Henderson fund manager and director of investment strategy, and Collin Reedie, head of corporate bonds. Both left last month; reasons for their departures and where they are now could not be learned by press time. n

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