CHICAGO -- Gary P. Brinson's task ahead: to Brinsonize UBS Asset Management.
While Mr. Brinson says it's business as usual at the institutional money management arms of Union Bank of Switzerland pending the results of a review, some observers believe it's just a matter of time before he integrates UBS units with SBC Brinson, the institutional investment management arm of Swiss Bank Corp.
Experts believe he will move relatively quickly to absorb New York-based UBS subsidiaries -- UBS Asset Management (New York) Inc. and UBS International Investment London -- which run a combined $30 billion in assets.
In an interview, however, Mr. Brinson said London-based PDFM Ltd., Britain's second-largest pension manager with L64.6 billion ($106.6 billion) in assets under management, will remain as separate and independent within the Brinson division -- the name given to the combined banks' institutional business.
"That decision's already been made," Mr. Brinson said.
Whether that commitment will remain, however, draws skeptical responses from some observers, who have witnessed many manager takeovers resulting in complete overhauls.
While both Chicago-based Brinson Partners (known as SBC Brinson outside the United States) and PDFM have common value-oriented investment philosophies, each has developed very different processes and cultures.
Brinson Partners is viewed as a very quantitative, top-down firm; Mr. Brinson's influential academic work emphasizes the importance of asset allocation. PDFM, while using some quantitative screens, is seen as both top-down and bottom-up and is more subjective in its process.
But Brinson stands out in other ways. For example, Brinson analysts are rewarded for sticking to the tightly controlled investment process, as opposed to picking the right stocks in a traditional arrangement, one outsider noted.
One pension consultant said: "In theory, it (the merger) could work. In practice, we just think there's a huge risk."
Added a U.K. pension fund client of PDFM: "There could well be a clash of culture and views."
World's largest money manager
Mr. Brinson, who will head the new division, will oversee $340 billion in institutional and mutual fund assets around the globe. He also will advise on another $400 billion in private banking assets.
The combined bank will have another $180 billion in consumer and corporate banking assets. That totals $920 billion in assets under management, making the bank the largest money manager in the world. The Chicago-based Brinson division will be the world's fourth-largest institutional manager.
But it's not only the amount of money that Mr. Brinson oversees that will grow. The merger with UBS also will bring new specialty asset classes.
Jim McCaughan, president of UBS Asset Management (New York), noted about one-fifth of the firm's $24 billion in assets comes from alternative asset classes, such as real estate, oil and gas, and timberland, which Brinson Partners lacks.
In addition, the UBS unit has done well with such specialized products as a $410 million biotechnology fund, a structured index product that uses futures arbitrage and a defensive high-yield strategy.
(The firm, which UBS had acquired from Chase Manhattan Bank in 1991, has shrunk from $33.6 billion a year ago, but that's largely because Chase reabsorbed $13.2 billion in cash equivalents this year -- a business in which Mr. McCaughan said UBS no longer was interested.)
The merger also will bulk up the combined banks' presence in the Swiss pension market. SBC had $12 billion in total Swiss pension assets, as of Sept. 30; UBS manages some $9.7 billion in domestic pension accounts.
So far, U.S. pension clients appear unconcerned. "There shouldn't be any impact on how our portfolio managers work with and for us," said Tom Taneyhill, administrator for the Baltimore Retirement Systems, with nearly $3 billion in assets. The fund has more than $100 million in an international equity portfolio managed by UBS International, which is the U.S. arm of PDFM.
Transition committees formed
But how the integration will play out will take some time to unfold. Four transition committees, drawing top executives from the respective banks' regional global money management operations, are expected to produce recommendations by the end of the first quarter, said Mr. Brinson.
Transition committees, covering the U.S., Japan, Singapore and Switzerland/continental Europe, will report to Mr. Brinson. PDFM Chairman Paul Meredith and other senior officials will advise Mr. Brinson on development of the global structure.
The objective, Mr. Brinson said, is to evaluate the respective banks' money management products and personnel with the goal of best meeting a diverse variety of client needs. It doesn't matter whether personnel come from UBS or SBC, he said. Most senior appointments at the combined bank have come from SBC.
Based on Mr. Brinson's recent efforts at integrating SBC's global institutional business into a common investment platform, nothing will happen overnight.
Following SBC's 1994 acquisition of Brinson Partners for $750 million, Mr. Brinson went around the world evaluating the bank's products and personnel, retaining a high proportion of them. "He's been very methodical," said one consultant.
Said Mr. Brinson: "I'm really concerned at the moment that we put one foot forward at a time. If we start moving too fast here, we're going to end up stumbling."
As a leading money manager, experts said Mr. Brinson has a firm understanding of the delicate sensibilities of pension funds, and would not make any sudden moves that would upset clients or their consultants.
Any changes "will be handled fairly sensibly," said George Henshilwood, partner at Hymans Robertson, a Glasgow-based consultant.
Nowhere will this be more important than in the United Kingdom, where pension clients have remained loyal to PDFM despite its ailing performance. Under the direction of Investment Director Tony Dye, the firm has been Britain's most notable bear, maintaining a double-digit cash position over the past 21/2 years.
The firm's ability to explain its value-oriented approach has served it well. Still, PDFM is viewed as vulnerable to client losses, and a change in its ownership might make U.K. trustees increasingly nervous, some experts said.
"I think that the news (of the merger) is unwelcome," said Geoff Singleton, deputy director of finance for Strathclyde Regional Council, Glasgow. PDFM runs a L771 million global equity portfolio for the L4.9 billion ($8 billion) Strathclyde Pension Fund.
"I think maybe over the long run things will change, and it may not be for the best. It's something we will watch and monitor," Mr. Singleton added.
Most U.K. clients are waiting to see how things develop, although the recent reported loss of a L1 billion balanced portfolio from Railpen, London, the respected rail industry pension fund, threatens to open the dam. The loss of the account was not connected to the merger; PDFM retains a L900 million bond account for Railpen.
PDFM's track record has given clients the jitters.
"We had a flurry of phone calls in September" calling for reviews of PDFM, said Nick Fitzpatrick, head of Bacon & Woodrow's investment consulting practice, London. "All the phone calls were withdrawn after the crash in Asia."
Mr. Brinson's commitment
Mr. Brinson said he is committed to retaining top PDFM professionals, including Mr. Meredith and Mr. Dye.
PDFM officials said both Brinson Partners and PDFM have been bearish on the whole and there's little overlap in their clientele. What's more, they emphasize they now will report to a respected money manager, not to a Swiss banker.
The question remains, however, whether Mr. Brinson would step in if PDFM were to hemorrhage accounts. Furthermore, one cynic pondered whether any suspicion by pension clients that Mr. Brinson would intercede -- his commitment to PDFM notwithstanding -- could result in a self-fulfilling prophecy. Another source suggested Mr. Brinson might impose tougher risk controls on PDFM, forcing the manager to take less risk from the benchmark.
What's more, others worry a few terminations by large clients could force down the price of stocks held by PDFM, as the manager is forced to sell off stocks. That would create a downward performance spiral.
One pension consultant, who asked not to be named, thinks the writing might be on the wall for Mr. Dye. "I think he's mortally wounded," added the consultant, who thought the merger could provide Mr. Dye a graceful exit.
"He is definitely not leaving," said Paul Yates, PDFM's marketing director. Mr. Dye has the strong support of both clients and Mr. Brinson, he noted.
If so, Mr. Dye's departure and an adjustment in PDFM's style could "tip the balance," Mr. Fitzpatrick said.