Dennis H. Ferro, Evergreen Investments' president and chief executive officer, has been in tough places before, including a stint with the military in Vietnam. Today he's fighting to keep Boston-based Evergreen on track to achieve highly ambitious goals even as the firm found itself this summer on the long list of money managers cited by the Securities and Exchange Commission for market timing and oversight issues. Mr. Ferro took the helm at Evergreen in September 2003, just as the money management industry was being roiled by New York Attorney General Eliot Spitzer's announcement of the first of many market-timing settlements to come. A year later, with Evergreen suddenly added to the roster of firms working out issues with regulators, Mr. Ferro said he remains committed to achieving the kind of cache for the Evergreen name that industry leaders such as Capital Research & Management Co. and Wellington Management Co. LLP enjoy. To get there, Mr. Ferro might have to draw on a lifetime of experience, from experience in Vietnam to somewhat less hazardous combat in the financial centers of London and Tokyo. Mr. Ferro spoke with reporter Douglas Appell about Evergreen's efforts to push ahead at a time of turmoil for the industry.
Q The SEC has fired a shot across Evergreen's bow. Is this a speed bump or a brick wall?
A As we continue to engage in discussions with the SEC staff, it's impossible for us to speculate on an outcome. The issues here are not uncommon in this industry, and we have enhanced our practices, as have other firms. At this point, we have not seen any significant client withdrawals, and we have received positive feedback about the information we've been able to share with clients.
Q The SEC's Wells notice suggested shortcomings in compliance and internal controls.
A Evergreen takes the Wells notice very seriously and we continue to be engaged with SEC staff with the goal of resolving matters. We've worked very closely with our board over time, and we feel confident today that we have very strong compliance capabilities and internal controls in place. We've made further steps to strengthen our code of ethics, and we've identified a number of best practices in the industry that we want to not only adhere to, but also be a leader in.
Q How is morale holding up?
A Our employees and teammates at Evergreen come to work every day to do the best they possibly can for clients and shareholders with the highest standard of ethics and integrity. All of the goals we spoke of before are still in place. I've spent the last two weeks doing a lot of town hall meetings at many of our offices, including Boston, Charlotte (N.C.) and Richmond (Va.). The reaction has been very positive.
Q The key goal you've mentioned is to make Evergreen one of the industry's premier names.
A We've taken a lot of very large steps toward that goal. I think our quality of product has consistently improved, the quality of service that we provide clients has improved across the board. And I think through all of that we've adhered to very high standards of ethical practice.
Q Firms such as Janus Capital Group and MFS Investment Management have tweaked their compensation systems to bolster results.
A We've actually begun a strategic review of our compensation structure. We want to make sure we pay people competitively and attractively, but at the same time, reward the right type of actions, consistent with the goals of the company and our clients. Through the course of the year, we'll look at best practice in the industry, but at the same time look to develop our own individual thoughts on how we can best compensate our people. That's something we're working on at the highest levels of the company.
Q Is the team growing?
A We have been actively increasing our research capabilities, adding a number of people to our equity research group here in Boston, and have plans to increase our equity and fixed-income research capabilities in a number of locations where we manage money. We have about 40 on the equity side, and just slightly less than that on the fixed-income side, so it's a very strong commitment to both areas.
Q Evergreen has come about as the result of several mergers and acquisitions. How do you make the whole greater than the sum of those parts?
A When I came, we had a very different structure, a lot of independent investment companies that, to my mind, did not have the right focus, did not have a consistency of management approach, and had a lot of redundant product. So about four years ago we made an organizational change, used Evergreen as the overarching brand name for all of the investment activity, and I think that's worked very well from the standpoint of an organization that makes sense, an organization that knows where it's going.
Q Do consultants know the Evergreen story?
A I think Evergreen would be characterized as a company on the rise. It's on people's radar screens … people are watching very closely, to see if it achieves its goals of leadership.
Q So your image-building exercise is a work in progress?
A It is, and that's why last year we started to do some advertising, both on the mutual fund side and the institutional side. (But) advertising is only one part of visibility. The first year and a half I was here, I didn't go visit a consultant on the institutional side, because I knew organizationally there were things we needed to … bring together. We were in the process of building a stronger performance record in a number of our products and we needed to have that to move forward. I think it's very important when you meet with the consultants that you don't insult their intelligence, that you have an organizational story and a product story that makes sense and that has a lot of integrity. … We needed to wait until we got the proper standards in place, the proper performance in place, and quite frankly the proper client service in place … before we could go to them.
Q How are you pursuing institutional business?
A We're casting a wide net. We have built up our institutional sales force over the last three years, and at the same time we've built up a consultant services group and our client services area. That commitment has been paying off.
Q Has the regulatory grip on mutual funds made that business any less attractive?
A We're going through a stage of change as to how the industry's going to be managed. I think it will make firms think about whether they want to be in the business or not because there will probably be some (pressure) to spread compliance and legal costs over a larger base. But I still think that mutual funds, as a product, will continue to be very central to most investment strategies.