Invesco recovering from '07 defections

After a 30% drop in assets, Invesco executives say the fallout from last year's defection of key stable value team members is finally over.

When 16 staffers left in March 2007 to join Deutsche Asset Management, Invesco managed $47.4 billion in stable value assets. That number has since dropped to $32.3 billion, but is now holding steady, executives said. Invesco would not disclose how many stable value clients it has.

While acknowledging that 2007 was a “trying year,” Rich King, managing director and head of fixed income for Invesco's Louisville, Ky., office, said there is tangible evidence the business is now steady.

“We've only had one new notification (that a client was dropping Invesco) this year,” Mr. King said. He would not identify the client. He added the firm is showing up in searches this year.

Mr. King also noted the three Invesco strategies that feed into the stable value fund all outperformed their benchmarks in 2007. “That comes in a year when most managers underperformed their benchmarks,” Mr. King said.

Also, no other staff members have left Invesco's stable value group since the original defections were announced in March and April of 2007, he noted.

At least one consultant agrees with Mr. King's outlook.

Mercer LLC automatically put Invesco on watch for a year following the departures, but the firm likely will be taken off the list soon, said Jeffery Schutes, the U.S. business leader for Mercer.

“We're getting very close to taking them off the watch list at this point,” he said. “They haven't missed anything on performance.”

Mr. Schutes said part of the reason he is confident in Invesco's stable value team is because the firm was quick to bring in other professionals from other firms or other parts of Invesco's fixed-income business who already have that experience and knowledge of Invesco's stable value business.

Mr. King, for example, had held various positions at Invesco between 2000 and April 2005. He rejoined the firm to grow the overall fixed income business and help steady the stable investment team after the departures. The firm also offered retention payments to members of the stable value team and awarded some key employees stock awards and multiyear guarantees to ensure they remained with Invesco.

Much of the $15 billion in assets that left Invesco went to Dwight Asset Management Co., Burlington, Vt.; Galliard Capital Management Inc., Minneapolis; and JPMorgan Asset Management, New York, according to a consultant who asked not to be identified.

David Richardson, managing director and head of business development at Dwight, said his firm gained about $10 billion in stable value assets from clients that had previously hired Invesco. The firm has a total of $45 billion in stable value assets.

Deutsche Asset Management executives concede they did not win most of the stable value business that left Invesco, but they say that was never the main intent when they hired the Invesco team.

“We never recruited this team to be focused on stable value. We recruited them to focus on institutional fixed income,” said Bart Grenier, managing director and global head of active and passive investments DB Advisors, the institutional arm of Deutsche Asset Management, New York.

Indeed, Mr. Grenier said DB Advisors has finished structuring a new fixed-income investment platform largely centered around the former Invesco team. The firm just announced new roles for senior members of that team and began unveiling the fixed-income platform to consultants three weeks ago.

The senior members included Stephen Johnson, who was chief investment officer; Mark Dowding, former director of U.K. and global fixed income; Kenneth Bowling, Invesco portfolio manager and director of fixed income; James Guenther, director of global credit research.

Under the new roles, Mr. Johnson will serve as the global head of fixed-income process management; Mr. Dowding, the head of institutional fixed income for the United Kingdom and Europe; Mr. Bowling will head institutional fixed income for the Americas; and Mr. Guenther will serve as an asset class head specializing in U.S. credit.

Deutsche has revamped its investment platform in a way that will allow the former Invesco team to have input into nearly any Deutsche fixed-income strategy, Mr. Grenier said.

Previously, the teams that managed different strategies were separate from each other. Now every team managing fixed income for different geographical areas or asset classes contributes their insights to the same investment platform, which is headed by Mr. Johnson.

The insights from each team generate a total of more than 1,500 “alpha signals” across the platform, Mr. Grenier said. When a client hires Deutsche for any fixed-income strategy, Deutsche will use new technology to take a subset of the appropriate alpha signals and budget them into the client's individual portfolio.

“It increases your flexibility in terms of product design. Now we can make any product a client wants,” Mr. Grenier said.

With its new team members in place, Deutsche just began approaching consultants about the new platform. Mr. Grenier said executives from one global consulting firm visited Deutsche three weeks ago and executives from two other large, global consulting firms will meet with Deutsche over the next two months.

Contact Jay Cooper at [email protected]