BOSTON State Street Corp. executives likely will recruit a new CEO for its $2 trillion money management business from outside the firm, for the first time in years.
While Ronald E. Logue, State Streets chairman and CEO, said the parent company will look pretty evenly between internal and external candidates, several executive recruiters who specialize in filling money management jobs said State Street Global Advisors does not have the depth internally to fill the slot.
William W. Hunt stepped down on Jan. 3 as president and chief executive of State Street Global Advisors, following losses and five lawsuits involving some of the firms actively managed bond funds. In addition, the firm recently lost a team of eight international equity quantitative portfolio managers to Lazard Asset Management LLC.
Names mentioned as possible replacements for Mr. Hunt include:
• Robert Reynolds, former vice chairman and chief operating officer of Fidelity Investments;
• Peter Smail, president and CEO of Pyramis Global Advisors, Fidelitys institutional money management unit;
• Matthew Scanlan, managing director of Barclays Global Investors institutional business in the Americas;
• Brian Fullerton, formerly chief investment officer for the Americas and global chief risk officer for Merrill Lynch Investment Managers;
• Keith Schappert, who in December resigned as managing director and CEO of Credit Suisses asset management business in the Americas; and
• Scott Powers, CEO of Old Mutual Asset Management.
Mr. Powers said he is very happy with the job I have and that State Street has some good internal candidates.
Messrs. Smail and Scanlan both declined comment through respective spokesmen. Messrs. Schappert, Reynolds and Fullerton could not be reached by deadline.
State Streets Mr. Logue said the firm intends to hire a new chief executive officer for SSgA by the end of the first quarter. State Street already has named an executive search firm to conduct the search, though executives declined to identify the firm.
Mr. Hunts departure came as State Street announced it will record a net charge after taxes of $279 million in the third quarter. That charge will cover a $618 million reserve to address legal exposure and other costs stemming from sharp underperformance of a number of SSgA fixed-income strategies that had subprime exposure.
State Street executives confirmed that SSgA has been hit with five lawsuits involving SSgAs fixed-income strategies. Four of those suits come from Nashua Corp., Unisystems Inc., Andover Cos. and Prudential Retirement Insurance and Annuity Co.
James S. Phalen, State Streets current executive vice president and head of international operations for investment servicing and investment research and trading, is filling in as interim president and CEO, during the search for Mr. Hunts replacement.
SSgAs next CEO will need a strong global background and some solid experience in assessing risk, Mr. Logue said.
He said candidates could come from the distribution or investment side of the asset management industry. They can come from different skill sets, as long as they have the ability to lead and manage.
Big name needed
State Streets openness to hiring from the outside is a considerable change for the firm, several recruiters said.
Theyve always hired internally. Its a huge break. Going outside means they dont have the bench strength or the experience and maturity, said David Trevena, managing director for executive recruiter Westwood Partners LLC, New York.
Mr. Trevena and other recruiters expect the hire to be a big name. They need a good business leader there someone who can talk to the big clients and has credibility with the biggest institutional clients, he said.
People who are not in a CEO spot but who have a seat at the table would find this opportunity very attractive, said Debra Brown, a managing director in Russell Reynolds Associates New York office. Ms. Brown declined to name any possible replacements for Mr. Hunt.
Some recruiters cited Fidelity veterans as strong candidates.
One recruiter, who requested he not be identified, said Mr. Reynolds is a good fit because of his charisma.
Morale is down (at State Street). Theyve had individuals leave or who are looking to leave, the recruiter said. Bob is charismatic and inclusive and could keep people there and recruit new ones in.
Another recruiter, who declined to be identified, spoke highly of Mr. Smail. Peters not a CFA, but hes been around the investment process long enough and knows how to lead investment professionals, so that might be an interesting choice, the recruiter said. Hes been around Fidelity quite a while. It might be a good change of pace.
As a senior executive at BGI, SSgAs direct competitor, Mr. Scanlan is knowledgeable about many of the same types of investment strategies.
Steve Niss, a managing director at RWD Executive Search LLC, New York, said Brian Fullerton is a class act and could really turn that place around.
Mr. Trevena said Mr. Schappert was a good candidate because he has worked at big firms, including JPMorgan Investment Management (since renamed JPMorgan Asset Management). Mr. Schappert was at JPMorgan when the firm built its enhanced index business. Enhanced indexing is now a big part of SSgAs business.
Mr. Powers is viewed as a good business leader, though some recruiters point out that Old Mutuals asset management business has a very different business model from SSgA, employing a holding company comprising boutique firms.
David Barrett, founder of David Barrett Partners LLC, a New York-based asset management search firm, said parent State Street is likely to tighten its control over the money management unit. For the short term, clearly theres going to be some tight controls. I doubt theyll give the keys up right away, given where they are right now, Mr. Barrett said.
Another recruiter, who asked not to be named, said that increased control by the bank could present a problem in attracting investment talent. Your top candidates may have some concerns about the banks influence on the investment management business, the recruiter said.
State Streets Mr. Logue said there are no plans to change the money management units autonomy. SSgA has the amount of independence they need to do what they need to do, Mr. Logue said. Weve struck a really good balance for the independence needed for their type of business. Weve also been able to utilize their intellectual capital in the corporate efforts as a whole.
Mr. Logue pointed out that SSgA continues to play a bigger role in State Streets overall business contributing 24% of profits in 2006, up from 17% in 2004. Assets under management have also increased steadily to $2 trillion as of Sept. 30 from $1.35 trillion at the end of 2004.
Were not going to tinker with the business model, he said. Were not looking for someone to dramatically change SSgAs business model just the opposite.