Manager works on pulling itself together

HOUSTON — WestAM Asset Management is looking to unify its operation stateside while things seem to be coming unglued at its German parent.

The Frankfurt-based parent, WestLB AG, is under pressure on several fronts. A landesbank, it is facing pressure as the government looks to consolidate those state-run entities. And the bank has been struggling financially, losing more than €1 billion ($1.05 billion) last year. In June, facing shareholder pressure, CEO Jurgen Sengera resigned.

In the United States, WestAM has been faced with its own challenges in recent years, as it has tried to piece together asset management firms after an acquisitive period between 1999-2001.

Earlier this year, the firm refocused itself under the leadership of Mark Vorbach. Mr. Vorbach took on the new position of regional CEO of U.S. operations. Previously, the firm had had product CEOs or local CEOs at each of the affiliates, said Patrick Lyn, WestAM spokesman. The new focus brings all of the U.S. affiliates under the WestAM umbrella, with one brand name and one chief executive. Mr. Vorbach, in turn, reports to global CEO Luke Nunnely. (European operations are overseen by regional CEO Kevin Birch, who also reports to Mr. Nunnely.)

Since former CEO Richard Wohanka left WestAM to join Fortis Investment Management in late 2001, the firm has been somewhat rudderless, observers said. Mr. Wohanka, architect of WestAM, built the firm through acquisitions. While he was at the helm, the firm acquired Criterion Investment Management, a Houston-based fixed-income shop, in 1999; Phillips Capital Management, a Chicago-based private equity shop, in 2000; and Gulfstream Global Investors, a Dallas-based international equity shop, in 2001. Up until late last year, Criterion had continued to go by its own name. Now all affiliates are under the WestAM name. "We want to create a single face to clients," said Mr. Vorbach.

Mr. Vorbach doesn't anticipate any further purchases. The goal now is to digest the acquisitions, evaluate the capabilities and, he said, "extract maximum value from our businesses."

A primary focus is to integrate and coordinate the sales and marketing effort by creating a single staff, allowing for more cross-selling opportunities of both U.S. and global capabilities, he said. WestAM has offices in Europe, Asia and Australia, as well as the United States. "It was always our intent to leverage the international nature of the business," said Mr. Vorbach.

But WestAM has had its share of growing pains. While assets grew 6% in 2002 to $38.9 billion, the firm's subpar investment performance and lack of marketing focus has stunted growth.

Fixed income, which accounts for three-quarters of the firm's assets, had "disappointing" performance last year, said Mr. Vorbach. WestAM's core, core-plus, and high-yield portfolios all trailed their benchmarks in 2002, according to PIPER, a manager performance database owned by Pensions & Investments.

Core returned 9.2% and core-plus returned 7.5% in 2002, compared with the Lehman Aggregate, which returned 11%; high-yield returned -5.4% compared with the Salomon High Yield index return of -1.5%. A bright spot, said Mr. Vorbach, was the short- and intermediate-duration portfolios, which beat their benchmarks.

The firm's fixed-income fortunes have stabilized and improved in some areas in 2003, said Mr. Vorbach. The core-plus portfolio beat the benchmark through the first quarter, returning 1.9% vs. the Lehman Aggregate's 1.6%. The core portfolio returned 1.5% in the first quarter. Meanwhile, the other parts of the business, private equity and international equity, remain relatively strong, he said.

What impact the parent company's problems will have on WestAM is unknown, said Mr. Vorbach. "It's difficult to spectulate in terms of what that means."

If there is consolidation among the German landesbanks, that could bring opportunities for a midsized firm like WestAM, he said, if it led to a partnership that made sense. But until something happens, he added, "It's not something we lose sleep about."

Mr. Vorbach is keeping to the task at hand —improving the asset management business. "Our immediate focus in terms of the U.S. is to continue to make the underlying businesses better," he said.