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March 2002

UBS gets a facelift


Two years ago the asset management division of UBS was facing an uncertain future. With figureheads Gary Brinson and Tony Dye gone it was time for new faces to take the lead. As value investing has come back into favour, performance has turned around and now UBS has done the logical thing, uniting the operation under one banner. Where next for UBS Global Asset Management?




       
Jeff Diermeier
One of the least surprising announcements of recent times has been UBS's decision to bring its asset management division under one name.
The arrival of UBS Global Asset Management, which becomes official next month, heralds the end of two of the biggest investment names on either side of the Atlantic: Brinson in North America and Phillips&Drew in the UK.
Given the regard in which both brands are held in their respective markets (even taking into account the problems of the mid to late 1990s), it is not a decision UBS has taken lightly. Brinson has been a powerhouse name in investing since the 1980s when Gary Brinson led a management buyout of First Chicago and gave the business his own name. P&D, for its part is one of longest-standing City institutions. Spun out from the old stockbroking firm, PDFM rose to become the pre-eminent investment house in London, sewing up a huge percentage of the pension fund market.
Although both brands suffered from their conviction that markets were overvalued in the mid-1990s, clients were loath to sack them because of their long-term track record and their managers' faith in their views. In the end for some, however, the pain became too hard to bear.
However those clients are starting to come back. As Paul Yates, the head of the UK region for UBS, points out: "We are looking at old clients because we genuinely left them on good terms. They didn't feel what we were doing was wrong, they just thought performance was too difficult to bear."
Now if they do sign up with the firm again they will do so to the UBS global operation rather than P&D. However, Jeff Diermeier, managing director and chief investment officer, says the name change does not affect the way the business is run.
"We've really been operating for the last several years as one entity but from a branding standpoint we had a couple of different faces," he says. "So this simplifies things, while it also reinforces the relationship with UBS which is very important to us as well."
Certainly it was on the cards once new chief executive John Fraser took over following Peter Wuffli's promotion to president of UBS group, of which more later. Fraser stated that a universal brand was necessary to complete the integration of the business, which includes the original UBS Asset Management in Zurich as well as investment centres in Australia and Japan. "It would be silly of us not to continue our coming together as a global firm and to try to do it without having one brand," said Fraser.
However Diermeier says there was a need to be sensitive to clients' concerns and not rush things through. "A lot of clients go back a long time and there's no question that if we had done something like this two years ago it would have been more of an issue," he says. "There's no change in investment philosophy or style and people are comfortable with that but you never want to take a client's opinion for granted."
If all the messages coming out of the UBS camp today are positive, that's quite a change from 2000. The group admitted that year that it had lost £13 billion of assets under management in just the first quarter. There were high-profile client defections in the shape of Calpers, which took $1 billion from Brinson, and the Strathclyde pension fund in the UK, which removed £750 million from P&D.
Wuffli had difficult decisions to make and it was surely not coincidental that Tony Dye and Gary Brinson both moved on that year.
However, industry observers say it was not absolutely cut and dried that they would leave, though the timing seemed quite opportune. "I wouldn't necessarily say that they both had to leave," says a leading investment consultant in London. "Gary Brinson was probably looking for an opportunity to retire anyway. He had made all the money he wanted to make, and probably a lot more besides. So I took it on face value when he said he wanted to spend his time investing for charity."
He does add that the integration of the businesses was probably easier without these strong characters, particularly Dye in London. "The more strong opinions there are in the room, the less likely you are to be able to sort things out," says the consultant.
Forces for change
However, with Dye and Brinson gone, it was up to others to take the lead. One of the prime forces for change was Tom Madsen, managing director and head of equities, who arrived from JP Morgan Investment Management.
As one former P&D source says of his arrival: "He didn't mince his words when he came in. He started shaking the place up right from day one and wasn't afraid to do some pretty straight talking." Madsen brought an outsider's fresh approach. "He doesn't really fit the mould. He's in your face whereas others at Brinson and P&D are not really like that," a P&D source said back in 2000.
However, Madsen was not a complete stranger to senior figures in the firm. He and Diermeier have long been friends. "Even before the combination was determined, we had been talking to Tom about coming in to the equity role," says Diermeier. "Knowing, in discussion with Gary Brinson, that I would be moving into the chief investment officer role not far off in the future, with the idea that Tom would be head of the equity operation."
Bringing in an outsider was important, says Diermeier. "We wanted to bring in someone from outside the firm who would bring it together where the stresses would be greatest."
Madsen says he was certain of his role and responsibilities, which made his job easier. "When I joined it was crystal clear what my mandate was and how I would do it. There was no mystery. I had conversations with Jeff, with Peter Wuffli, with Gary Brinson."
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