THE ASSET MANAGER HOPES STAFF INCENTIVES WILL ATTRACT STAR NAMES AND HELP BOOST ITS UK GROWTH PROFILE
Two years ago, Dresdner RCM was riding the crest of a wave on the strength of its UK fund management team, which was universally regarded as one of best in the Square Mile. Now, however, with a great many UK managers having left, Dresdner's sales drive focuses most heavily on its S&P AAA-rated North American trust run by Seth Reicher from the US.
The company's results in the UK over the three years to 1 January speak for themselves. During that period, an investment in the Dresdner RCM UK Growth fund would have yielded returns of 103.77% on an offer-to-bid basis.
The UK Index fund would have netted investors a well above average 70.89% over the same time period. Even more impressively the UK Mid-Cap fund returned an impressive 140.29% in the three years to 1 January 2001, again on an offer-to-bid basis, ranking it second in the 207 fund-strong All Companies sector. The sector average return over this period was 60.69%.
Two years later and a glance at the one-year figures for the same funds highlights the dramatic decline in performance of Dresdner's UK capacity. The UK Growth fund is now ranked 267 in the sector over a three-month and one-year period, with returns of -11.32 bid to bid and -31.6% offer to bid respectively, in the period to 6 November 2001, on an offer-to-bid basis.
UK Index has fared slightly better over the same time periods, recording returns of -6.1% bid to bid over three months and, ranking it 111 out of 299 funds in the sector, and -17.5% offer to bid over one year, ranking it 54. The once all-conquering UK Mid-Cap fund is now a pale imitation of its former self, ranked 294 and 276 over three months and one year. Over three months, it returned -15.62% on a bid basis and over the year to 6 November 2001 it posted a negative return of -42.1%, offer-to-bid.
While it must be pointed out that the economic picture has changed beyond recognition in that time and that dramatic falls in fund performance in recent months are by no means confined to Dresdner, the contrast with its previous outperformance and its performance against its peers is stark.
In the intervening period, Dresdner lost virtually all of its UK team. Justin Seager, manager of the UK Growth fund, left to join Jupiter and run its UK Growth portfolio.
Derek Lygo, the manager who oversaw the dramatic rise of the UK Mid Cap fund and who stepped into Seager's shoes after he left, joined First State Investments as head of UK equities.
Head of European and UK equities Stuart Fowler moved to a new role at Axa Investment Managers, while chief investment officer for global equities Bill Stack resigned to spend more time with his family.
The team responsible for Dresdner's highly respected UK Smaller Companies funds left en masse to join stockbroker Beeson Gregory, led by Andrew Impey and Tony Watson.
Paul Sheehan, the equity income fund manager followed Seager to Jupiter, while a number of its top sales people also left the group, most recently John Tierney, head of retail sales and marketing. Few asset management companies could sustain the loss of so many of its key personnel in such a relatively short time and not see performance deteriorate, particularly one that has built a reputation based on star fund managers, sharing ideas in a team environment such as Dresdner.
Best Invest's Jason Holland said: 'The perception of Dresdner is that it is in pretty poor shape at the moment. Not so long ago it was one to keep an eye on, but there has been so much uncertainty over the group's future that it is not surprising it has lost so many key people.
'For us to feel more confident about investing in the group we would like to see a period of stability, with little or no fund manager turnover. Performance would have to increase dramatically and the market remains to be convinced that Dresdner is committed to asset management. The only fund we have recommended at the moment is the North American fund.'
Dresdner RCM is a relatively new construct, formed in 1997 from the merger of the asset management businesses of Kleinwort Benson and San Francisco-based RCM Capital Management, following Dresdner's takeover of both businesses.
Chief investment officer Neil Dwane believes that until now few people understood the combined entity's investment process. Even when the firm's figures were outstanding, he said investors were reluctant to invest as they were not sure how the company was achieving its returns.
'It was a problem for us in the past, and a source of immense frustration for our fund managers,' he admitted.
Dwane also acknowledges that the unsettled background provided by the failed mergers with Deutsche Bank and Commerzbank did not help to boost performance.
'However, following Dresdner's merger with Allianz, we now have a clear business proposition to offer based around talented stock picking with a growth bias. Allianz is very committed to asset management and has created a new asset management division, bringing together its disparate fund management businesses, such as Pimco and Oppenheimer, as well as Dresdner RCM (DRCM), using DRCM as its core,' said Dwane.
Stockpicking decisions are based on the buy-side research of 75 analysts, divided into six sectors: healthcare, technology, financials, industrials, consumers and telecoms, he said. Dresdner also uses a system called Grassroots, which commissions market research to analyse public reactions to developments associated with a stock the company has a firm conviction on.
To improve its record in keeping staff, Dresdner has put in place an employee incentivisation scheme that gives fund managers rolling three to five-year performance targets that incorporates a remuneration based on funds under management, which should help retain key staff, said Dwane.
It is also looking to grow the business by rolling out scaleable fund franchises across the world. By getting the right people in place, he continued, the business would be very scaleable. 'I'm very excited at the prospect of developing the business, initially in London, but in the long term globally. In London, we're looking to take on a new UK Growth fund manager and a manager for the UK Mid-cap fund.' he said.
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