Some dump SSRM before sale to BlackRock is final

BlackRock Inc., New York, is looking to finalize its marriage with Boston's State Street Research & Management Co. by month's end, but roughly one-fifth of the bride's institutional guests are looking like no-shows for the festivities.

Among the bigger clients either terminating the firm or transferring only a portion of their SSRM portfolios to BlackRock are the $24.5 billion pension fund of DaimlerChrysler Corp., Auburn Hills, Mich.; $21.5 billion pension fund of BellSouth Corp., Atlanta; and the $5.5 billion William and Flora Hewlett Foundation, Menlo Park, Calif., according to a source at SSRM who declined to be identified.

Doug Brown, director-asset management group at DaimlerChrysler; Thomas L. Harvey, director-public market investments with BellSouth; and Laurance Hoagland Jr., chief investment officer for the Hewlett Foundation, all declined to comment.

As many as 24 of the 109 institutional clients SSRM had in August — when BlackRock announced it would acquire the company — are not staying, according to the SSRM source. Those departures could trim the firm's $27 billion in institutional mandates by between $2 billion and $3 billion, the source said.

BlackRock officials wouldn't say how many State Street Research clients and how much in assets the firm has lost. But they did say those numbers were well within their initial expectations.

"We recognized at the outset that manager concentration and organization changes might adversely impact assets under management, and the actual results are better than we anticipated," said Barbara G. Novick, a BlackRock managing director.

Friends of the bride agreed with that assessment. "BlackRock expected this. It's part of the breakage," said another source close to SSRM, who declined to be named. Even at twice the outflows, the acquisition "would still be accretive to BlackRock's earnings," he said.

That a loss of more than 20% of SSRM's institutional clients would trim assets under management by only 10% or so suggests that the bulk of the firm's bigger clients are staying put for now.

For many smaller institutional clients, organizational changes were the key factor in deciding to move on, as a number of portfolio managers and client service personnel either opted not to stay or weren't offered positions following the acquisition.

Robert A. Dennis, investment director of the Massachusetts' Public Employee Retirement Administration Commission, Boston, said the vast majority of the 13 local public pension funds in Massachusetts with traditional equity or fixed-income mandates are terminating SSRM. They include the $62.1 million Natick Contributory Retirement System and the $109.8 million Chicopee Contributory Retirement System, the source at SSRM said.

Jerome Liebling, chief financial officer of the San Jose-based California School Employees Association, oversees the $50 million pension plan for the association's employees. He said officials hired Alliance Bernstein Institutional Investment Management to replace SSRM as manager of a $14 million fixed-income portfolio after learning that SSRM portfolio manager Barbara McKenna was leaving. Ms. McKenna could not be reached for comment.

By contrast, all of the 11 Massachusetts local public pension fund clients of SSR Realty Advisors Inc. have stayed, Mr. Dennis said, after BlackRock hired all 175 of that Morristown, N.J.-based unit's employees.