As Invesco's board of directors sought a successor for founder Charlie Brady in mid-2005, sharks were circling the money manager, hoping to bite off choice morsels. Back then, the far-flung firm was hamstrung by weak performance and fallout from its involvement in an industry-wide trading scandal.
Times have changed. Less than three years after the board hired Martin L. Flanagan, co-chief executive officer of San Mateo, Calif.-based Franklin Resources Inc., as president and CEO, Invesco looks more like a hunter than the hunted. Following its latest quarterly earnings report April 24, equity analysts overwhelmingly urged investors to buy the publicly traded money manager's stock, arguing that Mr. Flanagan's success in turning around the firm has left it poised for further gains.
Mr. Flanagan says his predecessors did a great job bringing a bevy of outstanding investment managers around the globe under one corporate roof, while his focus has been one of integrating them. Progress there, combined with investment judgments that allowed Invesco's managers to sidestep the market's ongoing credit crisis, should fuel the firm's continued momentum, he says.
Did you have to think hard about leaving Franklin? I grew up at Templeton, and ultimately Franklin. I was very happy and content. (Invesco) was just a compelling opportunity.
What did your initial to-do list look like? I wouldn't have taken the job if I didn't have a fundamental belief that it was a company with global capabilities, with talent that needed to be re-energized and given some direction. It was clear the organization was going through a succession process, and people wanted to move forward — a very positive thing, as opposed to showing up and finding everybody saying “everything's fine.”
Analysts had called Invesco an “undermanaged” company. Charlie Brady did a heck of a job (putting) a talented organization together around the world, (but) it was much more a holding company of asset managers than an integrated asset management company. Around each investment team, there was sales and support — we could have been covering the same (client) through 10, 12 different investment centers. That's not what the client wants. The client wants: "Here's my problem; come solve it for me.' That's really what we've been able to do. The investment management teams do what they're best at: managing money. And we can be responsive to the client in a much more efficient, effective way.
How did you get there? In September 2005, we had 60 leaders of the organization get together for the better part of a week. (We said to them:) Describe your business — what are we doing right, wrong, opportunities, challenges. It became blatantly clear — this is a smart group of people — that there's a better way.
If I'm a U.S. investor only, by looking at the world, I broaden my opportunities, and that's how we've done it. Organizationally, sales and client support (have become) much more global in nature, as opposed to being matched off against a specific investment team. Look at (Invesco's quantitative team) — together 25, 30 years, largely managing money for clients in the U.S. Today, they manage for clients in 20 countries ... The real estate business, which started as a U.S. business, has a European presence (and) ... an Asian presence. That's what's so fantastic about the global operating platform, (enabling) you to respond to clients. It involved a reorganization of the sales team, now headed by Jack Markwalter.
The chairman and president of Atlantic Trust Private Wealth Management, your high-net-worth arm? Yes.
With your latest earnings release showing high net worth accounting for less than 4% of Invesco's business, some people speculate Atlantic Trust could break away from the firm. That's absolutely false. Let's get back to how we look at the organization right now. It's becoming, by the day, more difficult to stick clients into historic retail, institutional or private wealth management channels. The whole notion is to have the capabilities to match up against the client. In the past, the business was organized as channel-based businesses. We just don't see it that way.
Integrating Invesco — leaving investment centers with more clients, more assets — sounds popular. Why didn't that happen sooner? Through the decade of the '90s, Invesco's success was spectacular. Only when things become challenged do you look at different possibilities. The notion's a very simple one: Our fundamental strengths are distinctive investment management teams around the world, and we want to deliver them to clients around the world through vehicles — separate accounts, commingled funds, mutual funds and now exchange-traded funds — that they want.
Has it been a matter of pulling teeth? You move a lot of boxes around. It's an enormous amount of work, a multiyear effort.
Is what you've done so far the heavy lifting or the low-hanging fruit? A little bit of both. You wish there was more low-hanging fruit! We're very excited about where we are as a firm. You can sense the success, the opportunities. A lot of the very difficult restructuring is over, and it's now (a matter) of taking advantage of where we are.
Did last year's lift-out of stable value veterans by Deutsche Asset Management affect your priorities in any way? You have to step back and ask, “Why did this happen? Are we on the right track or not,” and redouble your efforts. It was a short-term disruption, but the organization is stronger today, and (Invesco's broader) fixed-income team has more assets now than it did a year ago. We think we're on the verge of a great opportunity there. The money fund business, they've done a spectacular job. No SIV exposure; we haven't written checks; no (need to step in with) support agreements.
Was that luck, skill or both? It was very much part of the investment management process. That's what I feel so good about. For a liquidity product, what do people really care about? Safety, liquidity and then yield, and that's what we did. People who got themselves in trouble maybe had the order reversed. Go to the other end of the spectrum. We had a good business doing (collateralized debt obligations, collateralized loan obligations) — dirty words these days, right? The fact is we've done very well with it. At the end of 2006, our different investment teams around the world were looking at the opportunities and saying, “Something doesn't look right here.” We stopped participating in the CDO market when you could have done one a month. We wanted to improve our competitive position with our clients by not disappointing them.
GMO suffered when it did the same in the late '90s. Were you suffering as well in '06 and early '07? Sure. We were willing to give up short-term gains for the longer term success of the institution. For example, there was a quant opportunity for multihundreds of millions of dollars that we turned down because we weren't willing to give a single client so much of a capacity-constrained product. Think of where we were as an institution in 2006, 2007. Don't you think we would have loved (to report a big win?) But we're building the organization for the long term.
Contact Douglas Appell at [email protected]
