NEW YORK - At least two clients have terminated Mitchell Hutchins Asset Management as a result of the latest round of personnel turnover.
Another client is "re-evaluating" its relationship with the firm following the recent departures of the two portfolio managers heading its small-cap value equity team.
Shortly before that, Chairman Frank P.L. Minard announced he will leave the firm at the end of the year to head Bankers Trust Co.'s U.S. operations.
Those defections are indicative of the firm's struggle to co-exist with its parent, PaineWebber Inc., New York.
Late last year, Mitchell Hutchins underwent a round of personnel cuts that eliminated eight marketers and managers. Further cuts are scheduled, part of PaineWebber's cost-cutting plan.
Most recently, Dorik Rozanski and Morris Ajzenman, portfolio managers of the uncommon value equity discipline (which concentrates on small-cap value stocks), joined Rothschild North America, New York. They managed approximately $1.6 billion.
Messrs. Rozanski and Ajzenman will form the unrecognized opportunity division within Rotschild Asset Management. Their responsibilities at Mitchell Hutchins will be assumed by Mark Tincher, chief investment officer for U.S. equities, and Stan Dinsky, director of research.
The change prompted the $2 billion Arkansas Public Employees Retirement System, Little Rock, to drop Mitchell Hutchins and search for a small-cap value manager to take over the $110 million portfolio. Kie Hall, executive director, said requests for proposals will be issued before the end of the year and a final selection made by February; the Atlanta office of Callan Associates is assisting.
The Los Angeles County Employees' Retirement Association also terminated its $100 million allocation to Mitchell Hutchins following the departures.
Randy Kopsa, director-investments for the $600 million Boy Scouts of America pension fund, Irving, Texas, said fund executives will "re-evaluate" their relationship with Mitchell Hutchins, which runs a "small" equity portfolio for the Boy Scouts fund as part of a farm team program.
He added: "We have been pleased with our relationship" with Mitchell Hutchins.
Mitchell Hutchins' private equity team, which managed $250 million, departed two months ago.
That team, headed by George Sigular and Drew Guff, bought the private equity unit in a management buy-out to start a new firm, Sigular, Guff & Co. The transaction had been in the works for some time before the latest developments at Mitchell Hutchins, industry sources said, and it was a separate strategic business decision.
As for Mr. Minard, sources said his power within the organization had been reduced by a number of changes during the last year. In January, Mitchell Hutchins appointed Margo Alexander as president and chief executive officer. Mr. Minard, who at one time held all three titles, remained as chairman.
The appointment muddled the chain of command, and sidelined Mr. Minard, observers said. An industry source said the personnel cuts at the end of 1994 decimated the marketing organization he had put together.
Mr. Minard's concept of developing a manufacturing side to create product, and various channels of distribution for that product, was not well received by PaineWebber's management, said Chas Burkhart, president of Investment Counseling Inc., West Conshohocken, Pa. The appointment of Ms. Alexander meant "if it wasn't clear before, that the writing was on the wall," Mr. Burkhart said.
Ms. Alexander, a PaineWebber executive, was seen by some as an effort to rebuild Mitchell Hutchins' retail efforts, particularly among the PaineWebber brokers that should be a main distribution channel, said an analyst familiar with the firm.
Ms. Alexander understood the retail mentality and was trusted by the leadership of PaineWebber, he said. "It's an inside job first, before it's an outside job," he added.
Mr. Minard had no comment; he deferred questions to Ms. Alexander, who declined to comment through a PaineWebber spokeswoman.
The rift between retail and institutional was not helped by PaineWebber's purchase of parts of Kidder Peabody Group, including Kidder Peabody Asset Management and the acquisition of more than 20 of that unit's staffers. The purchase was widely seen as an effort by PaineWebber to acquire Kidder's sales force, a group of elite brokers with a list of high-net-worth clients other brokerages coveted.
Perrin Long, financial services analyst at Brown Brothers Harriman, New York, said PaineWebber officials had told him last month that the company was more interested in the retail side of its business than the institutional side.
Mitchell Hutchins had been struggling for a while, trying to integrate many acquisitions and trying to find its focus, said Roger Bransford, a principal of LCG Associates, an Atlanta-based consulting firm. "It doesn't have a fingerprint," a distinctive focus.
When Mr. Minard was named chairman and CEO in 1993, Mitchell Hutchins was embroiled in a lawsuit with Kleinwort Benson International Investment Ltd. over the defections of president Stephen Canter and five fixed-income managers. Mr. Minard succeeded Mr. Canter's replacement, Joyce Ferhnstock, who herself resigned after less then a year.
The firm was not considered a powerhouse in investment management when it acquired the assets of KPAM last year (Pensions & Investments, Oct. 31, 1994).
And, assets have been stagnant this year, despite the booming markets. Mitchell Hutchins had $44.8 billion in assets as of Sept. 30, of which approximately $15 billion are in the PaineWebber Mutual Funds, its parent's proprietary family.
The firm began the year with $33.7 billion in assets, according to P&I's 1995 Money Managers Directory. During the first quarter, it absorbed KPAM, which had approximately $10 billion in assets, and added the assets of another PaineWebber subsidiary, Financial Counselors Inc., Kansas City, Mo., which had $1.2 billion under management.
Brown Brothers' Mr. Long said the turnover at Mitchell Hutchins may result in some loss of business, but the long-term damage to the firm should be minimal.
"The memories of individual investors are short lived," he said. "For pension investors, Mitchell Hutchins has already lost some business as a result of this turmoil and they may lose some more. Clients are getting nervous. There is no question that some of their pension clients haven't given Mitchell Hutchins any additional assets to manage and some have pulled back."
However, he added pension asset management moves in circles and, although Mitchell Hutchins will lose some assets, the cycle will come around and the firm will make it up in the long term.
Mitchell Hutchins has pockets of good performance it can bank on, so if it can regain its momentum; it will be all right, said LCG's Mr. Bransford.
The firm has some high-quality products and individuals, said Richard Holbein, president of Holbein Associates, Dallas, consultant for the Louisiana Teachers' Retirement System, Baton Rouge. The $5.8 billion fund hired Mitchell Hutchins last year to manage approximately $100 million in large-cap domestic equity. That strategy is doing very well, beating its benchmark and turning in top-decile performance when measured against all other domestic equity managers, he said.
