Stephen Burke, chief executive of DeAM-Americas Institutional, said the newly remade firm has a straightforward vision: "We are committed to active management, with a strong institutional focus, offering capabilities in traditional and non-traditional asset classes, managed by small teams around the world that are supported by deep resources of fundamental and quantitative research."
But to become that manager, DeAM had to be almost completely reorganized.
William Shiebler, chief executive officer for DeAM-Americas, said the only part of Deutsche Asset Management left relatively unchanged was alternative investments: DB Real Estate, headed by Donald King; DB Absolute Return Strategies, headed by Josh Weinrich; and the Private Equity Fund of Funds Group, headed by Chuck Flynn.
Before integrating Zurich Scudder, Deutsche first had "to right the ship. It was in transition when we bought it. We reorganized the distribution, we cut costs and we took out some head count," said Mr. Shiebler.
DeAm completely subsumed Scudder's investment operations; all investment management now is done by Deutsche Asset Management. "The best practices and the best teams" were identified, said Leo Grohowski, chief investment officer-Americas. People from Deutsche and Scudder were combined into single teams, which now manage both institutional separate accounts and mutual funds, using 27 strategies, he said. Anyone who didn't make the cut at either company was laid off.
The combined work force has been reduced by about 25%, to just more than 6,000 from 8,000 in April 2002, said Ms. Inosanto. The Scudder mutual fund family has been reduced to 90 open-end funds from 102, and more mergers are possible, Mr. Shiebler said. Scudder Investments Inc. now survives only as a distribution company.
DeAM also reorganized equity research onto a single global platform; previously, research was regional. And in the last year, Mr. Grohowski developed a monitoring system that acts as an early warning system when portfolios are drifting from their style objectives. Performance of most of the 27 investment strategies is "improving month-by-month" as a result of better monitoring and tracking, Mr. Grohowski said.
Finally, leadership of the investment management activities was moved to a regional focus from global because "the asset management business, like politics, is local," Mr. Shiebler said.
That move from global oversight of asset management sent Dean Barr, global CIO, out the door last August. Mr. Barr was only one of many senior executives who survived the layoffs and left anyway.
A quick look at past issues of Pensions & Investments showed that at least 40 senior members of investment and sales and marketing staff left the firm voluntarily or through layoffs during the past year.
Observers don't know what to make of the new Deutsche Asset Management after so many significant changes.
"I'm still trying to come to grips with all of this," said Jeff Nipp, head of manager research at Watson Wyatt Worldwide, Atlanta.
Said one consultant, who declined to be named: "Of all the large, multiproduct firms, I know Deutsche least well. That's because there is no clear vision. It's a hodgepodge of whatever was left of Bankers Trust, whatever was left of Scudder, whatever was left of Morgan Grenfell ... I'm afraid I can't name anyone in the leadership at Deutsche. I just don't know who they are." (Deutsche Bank bought both Bankers Trust Co. and Morgan Grenfell & Co. Ltd. in 1999 and combined their asset management operations that year.)
Other observers speculate that Deutsche's marketing efforts will suffer from the loss of the passive and custody businesses, which provided ready-made cross-selling opportunities to existing clients for active and alternative strategies. "The passive management was a great entree. You could rely on those relationships to sell active management and alternatives. It's going to be much more difficult to market Deutsche's products without those ready-made relationships," said another executive recruiter who knows Deutsche well and who requested anonymity.
The passive business accounted for 20% of worldwide assets but less than 6% of revenue, Mr. Shiebler said. "When I looked at our P&L recently, I didn't miss it. We are concentrating on active and quantitative management and I think in time, selling the passive business will be seen as a good decision," Mr. Shiebler said.
Deutsche Asset Management has suffered $9 billion in net terminations on a global basis in the first quarter by clients uncertain what would happen to the investment management teams that managed their portfolios. That's on top of significant client terminations in 2002.
Despite these outflows, Mr. Burke said, the firm has a full pipeline of institutional searches in the United States and has been winning significant mandates for bonds, currency, cash management and multialpha source overlays year-to-date. He would not provide any names.
In the United Kingdom, clients and consultants are befuddled by the changes to staff and strategy for global and non-U.K. equities and for balanced mandates.
"Getting the information out of these teams is difficult when there are this many twists and turns," said a London-based investment consultant, who requested anonymity. "The problem for Deutsche is they've just moved to this new way of constructing portfolios (global, rather than regional). On top of that, they have the staff changes and the turmoil associated with the Scudder acquisition. It means they are not on anyone's shopping list right now."
Craig Brown, a Deutsche marketing executive, said the Scudder acquisition "had not been the success we originally anticipated." He made the comment while talking about performance during a presentation to the £400 million London Borough of Newham pension fund, a Deutsche client, according to an investment committee report published by the scheme.
Deutsche's £148 million portfolio for Newham is managed against the Morgan Stanley Capital International World ex-U.K. index. The scheme declined to provide the performance of the portfolio; the index returned -25.45% in the year ended March 31.
According to figures from PIPER, a database of investment manager performance owned by Pensions & Investments, Deutsche Asset Management's core EAFE equity strategy returned -23.6% for the 12 months ended March 31, compared with -23.8% for the MSCI EAFE index. That ranked the firm in the seventh decile out of 257 firms in that universe.
For global equities, according to the pooled pension fund survey of Russell/Mellon CAPS, Leeds, England, Deutsche's overseas equity fund returned -30.3% in the year ended March 31, which ranked it 46th out of 64 competitors.
The exception was the global thematic fund, managed by William Holzer in New York, whose performance has been more persistent. It beat its benchmark in each of the last three years.