Scudder Kemper Investments Inc.'s apparent effort to preserve profit centers could cost it clients.
The proposed reorganization structure and change in the investment process under the pending combination of Zurich Investment Management and Scudder Stevens & Clark Inc. has at least one pension fund client concerned.
Even in the high-powered, lucrative industry of money management, the adage might often still apply about the customer being right, or at least, in this instance, the client making a good argument.
The money management industry is constantly going through mergers and acquisitions. Managers, as well as pension funds, ought to look at these concerns.
In this case, the staff of the State Universities Retirement System of Illinois, Champaign, and its consultant, Ennis Knupp & Associates, in a joint memorandum are concerned specifically about the proposed Scudder Kemper new fixed-income management team structure and decentralized investment process. The state universities fund has $63 million with Zurich Investment Management.
The division of fixed-income management across three cities is among the areas of concern. Leadership will reside in Chicago, continuing under the existing portfolio manager. But two new professionals, in Boston and San Francisco, will join the team.
The fund staff and consultant think the physical separation of the team "complicate(s) efforts to share information and reach consensus." They view the "decision to divide research resources" as "suboptimal." They believe "the decision to not centralize research was based on a desire to minimize the need for employee relocation, not on investment efficacy." Trading, under the proposed structure, will take place in three locations, offsetting "execution advantages Scudder Kemper might otherwise enjoy due to its size." The separation might cause traders to compete with each other, potentially increasing prices for buys and decreasing prices for sells.
Earlier this year, First Chicago Investment Management Co.'s plans for restructuring its ANB Investment Management & Trust Co. unit encountered obstacles, namely, client concerns. One concern was a proposal to convert much of the index-fund business to mutual funds.
After introducing the idea, First Chicago learned clients would resist paying higher fees for mutual funds than for a traditional commingled trust fund. Ultimately on that issue and others, First Chicago realized the powerful influence of clients. It sold ANB to Northern Trust Co.
The state universities system plans to review its Scudder Kemper relationship in March. Although concerned, the system sees no need to make a precipitous decision.
Commenting on the concern, a Scudder Kemper spokeswoman said, "We have every confidence the combination of Zurich Scudder will provide premier investment management solutions." She said clients are remaining committed.
Scudder Kemper might be looking too closely at the restructuring for the company's own benefits while losing sight of benefits clients expect. If clients leave, jobs and profit centers it sought to retain ultimately will be lost.