Manning & Napier seeks to be leaner, focus on wealth clients

Manning & Napier Inc., which for years has been beset by asset declines and turnover of senior personnel, is taking steps to become a "leaner organization" while targeting the wealth management arena for growth, said Marc Mayer. the firm's new CEO.

The business strategy comes as the Fairport, N.Y.-based active money manager, which offers equity, fixed-income and multiasset strategies, has seen its assets under management drop to $21.3 billion as of June 30, down more than 60% from its peak of $54.1 billion five years ago. Shares of the company have also plummeted 35.7% on an annualized basis, 89.7% on a total basis, as of Aug. 28 to $1.77 from $17.26 on June 30, 2014.

"We need to be a leaner organization but we don't have a specific (headcount) goal," said Mr. Mayer, who was appointed CEO on Jan. 31 after having served as head of North American distribution for Schroders in New York.

In the second quarter of 2018, Manning & Napier began offering early retirement packages to some employees in an effort to improve profitability, and also made additional "workforce reductions," company officials said during an earnings call at the time.

Just less than 20 employees accepted the early retirement offering, and around 20 additional positions were eliminated, allowing for $6 million in annual savings. At that time, the workforce reductions did not affect the firm's sales or investment teams, Chief Financial Officer Paul J. Battaglia said during the call.

Despite strategic staff cuts over the past year or so, which have been distributed across the organization and "not isolated to asset management vs. wealth management (roles)," workforce reduction measures are expected to continue, Mr. Mayer confirmed in an Aug. 21 phone interview.

Manning & Napier's employee count has dropped to 336 people as of June 30 from 508 employees in mid-2014, the company has reported in earnings releases.

"We are a public company. Our level of profitability is not acceptable to us, so actions must be taken," Mr. Mayer said.

"We will need to run leaner but ... we see really interesting and substantial opportunities for investment as well," he said of efforts to grow through the wealth channel.

Mr. Mayer said the firm has "identified very material growth opportunities in wealth management, where we would expect to see over time … substantial investment and growth in that business and building out an adviser force."

The majority of Manning & Napier's wealth clients — which make up around half of its $21.3 billion in AUM — are individuals and families, but also include some institutions, such as endowments, foundations and businesses, Mr. Mayer said. (As of June 30, 2014, approximately 35% of the firm's AUM was with wealth clients, while the remainder was institutional assets, according to a spokesman.)

Historically, Manning & Napier has called its wealth management business its "direct business," as it comprises direct client relationships unmediated by investment consultants.

According to Mr. Mayer, despite the focus on wealth, he still believes there are opportunities to "judiciously" develop new strategies targeting the midsize to larger institutions it also serves, although building scale in the traditional, long-only active space is "challenging" in the current marketplace.

In another effort to reduce expenses, Manning & Napier also agreed on June 28 to sell a subsidiary, Perspective Partners LLC — an employee benefits software and service provider — to Manning Partners LLC, the company disclosed in a Form 8-K filing with the Securities and Exchange Commission. Manning Partners is owned by William Manning, co-founder and chairman of the board at Manning & Napier. The sale is expected to close this quarter for an estimated $3.2 million.

Amid the firm's turnaround efforts, Mr. Mayer said Manning & Napier is "not actively pursuing any types of acquisitions in asset management at this time." Additionally, "the firm is not for sale," he said in the interview.

When Mr. Mayer joined at the end of January, Manning & Napier dissolved its interim "office of the chief executive officer," which was formed in March 2018 with longtime executives Charles Stamey, Jeffrey Coons and Richard Goldberg as co-CEOs.

In addition to relinquishing their co-CEO roles, Mr. Stamey retired as executive vice president, effective Jan. 30, while Mr. Coons was terminated from his position as president the same day, the company disclosed in an 8-K filing. Mr. Stamey remained in an advisory role with the company until April 30, while Mr. Coons was retained as a consultant through the same date, according to the filing.

Mr. Goldberg remains a member of the board of directors.

The firm has continued to see senior level departures in recent years, including former CEO Patrick Cunningham, who retired in April 2016, and former CFO James E. Mikolaichik, who left the firm in August 2016 to join Hilton Grand Vacations.

After Mr. Cunningham's retirement, Mr. Manning became CEO while the company searched for a permanent replacement; he stepped down when the firm formed its interim office of the CEO.

"They have obviously had a number of changes over the years," said Greg Carlson, a senior manager research analyst at Morningstar Inc., Chicago. "Assets under management have dropped pretty significantly, so that is driving the neutral rating" that Morningstar has given the parent, Mr. Carlson added.

From mid-2014 to mid-2015 Manning & Napier saw performance challenges that contributed to its 20% drop in total AUM to $43.1 billion as June 30, 2015. But the larger trend in the investment industry toward passive strategies compounded the company's troubles.

In a September 2017 interview, then-president Mr. Coons told Pensions & Investments: "We're seeing shifts in the marketplace, and highly active managers like us are being affected by that."

In a March 2019 analyst note, Mr. Carlson wrote that "performance struggles led to hefty outflows and the 2015 restructuring of the investment team (at Manning & Napier), and the latter resulted in the departure of a half-dozen senior investment professionals."

But, "turmoil at the firm may now be on the decline," he continued, adding that "strong relative performance in 2018 has led to slowing outflows."

During the year ended June 30, Manning & Napier experienced net client outflows of $2.7 billion, compared to the year ended June 30, 2018, when net client outflows were $5.9 billion, the company reported in earnings releases.

In addition Mr. Mayer's appointment as CEO, "the investment team remains long-tenured and well-resourced, and it retains the risk-conscious culture that it has cultivated since the firm's 1970 founding," Mr. Carlson wrote in the report.

For institutional investors and consultants assessing the health of money managers, there isn't necessarily a direct relationship between desired headcount levels and AUM at firms, "especially in today's market where revenue plays a larger role given the wide range of fee structures for different products," Francine McKenzie, managing director at compensation consultant Johnson Associates Inc., New York, said in emailed comments.

"I would think AUM might be one factor, but in conjunction with the kind (complexity, associated risk factors, etc.) and number of products," as some require more staff than others to manage, she added.

Still, a significant drop in AUM and headcount "could signal instability to investors which is obviously undesirable, especially if coupled with poor investment returns," Ms. McKenzie wrote.

Jeffrey A. Levi, a Darien, Conn, principal at Casey Quirk, a practice of Deloitte Consulting LLP, said consultants are generally "looking to understand the health of the (money manager's) business ... to make sure that the firm can endure and invest in their strategies and people the right way," he said.

A smaller shop with a broad product set, which doesn't outsource technology and operations functions, may need more staff than a larger firm with one investment strategy that does outsource, Mr. Levi said.

"It's a question of business complexity, largely. It's breadth of product, client coverage, and what do you insource vs. outsource," he said.