Put together the cultures of a German universal bank, a London merchant bank, an Asian-based retail manager, a Paris niche manager and a California-based domestic money manager, and what have you got? Dresdner RCM Global Investors.
Last month, Frankfurt-based Dresdner Bank AG received final regulatory approvals to merge its far-flung entities into Dresdner RCM, with $59 billion in assets under management.
The question, observers say, is whether Dresdner RCM will live up to its goal of becoming "the firm of the future," as Chief Operating Officer Michael Apatoff, put it. So far, though, competitors appear unfazed and the firm fails to show up on the radar of leading European consultants.
Combined into one firm are: San Francisco-based RCM Capital Management, acquired by Dresdner Bank from Travelers Group in June 1996; blue-blooded Kleinwort Benson Investment Management; Thornton and Co., a Pacific Basin-oriented retail manager; and BIP Gestion, a small Paris-based manager.
Notably, Dresdner Bank's two German money management units, which manage and advise on $140 billion in assets, are excluded, although officials at Dresdner RCM and the parent bank will explore closer cooperation during the coming year.
Potential abounds
The potential for coordinating with the parent bank is huge. Strategic discussions between officials at Dresdner, one of Germany's top banks, and Allianz AG, Germany's largest insurer, on cooperating on asset management could create a vast distribution network for Dresdner RCM products.
Based in San Francisco, Dresdner RCM is dominated by officials from the former RCM Capital Management. RCM veteran William Price serves as chairman and chief investment officer of the combined group.
Outsiders observe that RCM essentially was a U.S. domestic manager, with a relatively small portion -- $610 million of its $31 billion in assets under management, as of Sept. 30 -- invested in non-U.S. markets. Bill Stack, who joined RCM in 1994 as chief investment officer for global equities from Lexington Management Corp., Saddle Brook, N.J., claims strong investment returns and a long career in international investment management.
Some outsiders said the merger has had its bumps, although Dresdner RCM officials said it has been a smooth transition that has benefited all concerned.
Mr. Price, who is given to speaking in U.S. management jargon, said, "the combination of the four was synergistic" and has been "additive" for each firm involved.
Mr. Price said the four firms are bound by "several critical common bonds." For example, all are investors seeking "superior investment returns" and are in "client-directed businesses."
Differences in investment styles among the firms were far less than expected, Dresdner RCM officials said. All the firms have "great respect for fundamental research" and are driven by bottom-up stock picking techniques, Mr. Price said.
The goal is to create a firm with "single identity" and "with a single product around the world," Mr. Stack said.
Global equity challenge
From an investment standpoint, the greatest challenge was creating a single global equity product, Dresdner RCM officials said. RCM's investment process essentially was expanded to include the efforts of the other firms.
It is RCM's global equity track record that is being marketed, although many local products, such as country funds, continue as before.
RCM already employed a global approach in its research, comparing companies in the same industries around the world. Thus, the leap to being a global manager was not that great, officials there said.
Plus, its "Grassroots" approach uses 320 people -- including 85 professional researchers -- who provide first-hand research from around the world on the marketability of industrial and consumer products. These non-investment professionals provide data on everything from medical products to consumer products to technology.
The Grassroots research "was borne out of a big mistake we made," 14 years ago, Mr. Price said, when portfolio company Warner Communications took a big write-down on unsold inventory and the stock plunged 50% overnight.
RCM officials had walked through Toys 'R' Us during the 1983 Christmas shopping season and observed unsold stacks of Warner's Atari games, but they failed to make the connection between that and the parent company's stock price.
After that loss, RCM officials started developing the network of contacts to provide direct market research, instead of relying on secondary sources. That approach now is being made available to Dresdner RCM offices globally.
Other products benefit
Meanwhile, the firm's integrated global fixed-income product also benefited from the merger, Mr. Price said. U.S. firm officials provide insight on Federal Reserve policy, while the non-U.S. offices offer advice on currency movements.
In the United States, RCM's traditional domestic large-capitalization and small-cap growth products have rebounded from 1993 and 1994, when growth had fallen out of favor. "The style pendulum has come back distinctly in our favor," Mr. Price said.
For example, Dresdner RCM's U.S. Large Cap Growth composite returned 41.1% for the one-year period ended Sept. 30, compared with 40.45% for the Standard & Poor's 500 index and 43% for the RogersCasey Large Growth Index.
For the three- and five-year periods, it has annualized returns of 29.5% and 20.7% respectively, virtually matching the S&P index while outperforming the RogersCasey index by 150 basis points for the three-year period and underperforming by 70 basis points for the five-year period.
And the firm's balanced strategy for U.K. pension funds has experienced a sharp rebound since the beginning of 1996. In the first nine months of 1997, it has returned 22.5%, compared with 18.9% of the WM 2000 universe.
Some staff departures
The integration did lead to some staff departures, and not just where there was duplication.
Kenneth King, head of emerging markets at Kleinwort Benson, left with a team of seven managers to set up a new firm under the State Street Global Alliance umbrella.
Mr. King's team "insisted on not being integrated with Thornton" Mr. Stack said. "It simply didn't work with the business plan."
Mr. Stack added that the day the team left, Dresdner RCM actually had more investment personnel dedicated to emerging markets, as Thornton professionals were added to Kleinwort Benson's remaining portfolio managers, and that performance has improved since that time. The firm hasn't lost clients, he said.
Marketing opportunities
In the short run, Mr. Price expects the greatest potential will be in cross-selling products into each unit's client base. In particular, there is tremendous opportunity to sell international products to U.S. pension clients.
In Asia, Dresdner RCM officials hope to win business from Japanese institutions, where both RCM and Kleinwort Benson already have credibility.
Campbell Gunn, a veteran of Kleinwort Benson and Goldman Sachs Asset Management, is chief investment officer for Asia equities. Mark Konyn, formerly senior director for Fidelity Investments' Southeast Asian institutional business, has become head of marketing for Dresdner RCM in Asia.
It might take longer to market the firm in Europe, where Kleinwort Benson has had a rocky track record, and where its investment process was not viewed as consistent. The firm will be "able to present a new face, a new process" to consultants and institutional investors in Europe, Mr. Price said.
The firm has hired Jan Mantel as chief investment officer for European equities.
In addition to being a respected expert on European economic and monetary union, Mr. Mantel previously was a star portfolio manager with BZW Investment Management Ltd., until parent company Barclays decided to abandon traditional active management.
Long-term potential
In the long term, however, the question of integration of the two money management units for institutional and retail investors will have to be addressed.
"Dresdner would like to realize some synergies," such as Dresdner RCM has accomplished with the four non-German entities, Mr. Price said. "Over the next year, there will be an ongoing process" examining joint working relationships, he said.
Meanwhile, Dresdner and Allianz officials have been holding preliminary discussions on cooperating in money management, with several possible models on the table.
"We think that has interesting possibilities," Mr. Price said. "The breadth and depth of Allianz as a distribution channel clearly suggests possibilities."
Despite earlier comments from Dresdner officials that another money management acquisition might be in the offing, Mr. Price said that is unlikely. The job of the next year will be consolidation, not acquisition, he said.
