In a move intended to reposition its proprietary funds within its network of 11,000 advisers, American Express Financial Corp. is relocating a significant part of its investment management business outside of its Minneapolis headquarters and will open a new office in Boston.
The firm has hired three portfolio managers away from Fidelity Investments to run the new Boston location, which will specialize in equity investing. Douglas Chase, Robert Ewing and Nick Thakore were snatched from Fidelity to oversee several of the firm's domestic large-cap equity funds. The team will take over the management of about $12 billion in assets in April.
For years, American Express, which has about $80 billion in assets under management, had enjoyed a proprietary network of advisers that could only sell its funds. But nearly two years ago it allowed its advisers to sell other complexes' funds and offered them new ways to affiliate with the company, said spokesman Paul Johnson. Advisers were given the option of either becoming a franchise, where they would function as independent contractors, or enlisting as American Express employees, where the company would handle office support and other services.
The strategy was to attract and retain top-notch advisers by providing an attractive range of options.
Competition Saps Flows
But the firm's proprietary products suffered a hit when it allowed its advisers to sell other fund complexes' products. From 1999 to 2001, American Express' total assets under management dropped from more than $95 billion to $73 billion. And its total net flows plummeted from more than $1 billion in 1999 to a -$1.6 billion last year, according to Financial Research Corp.
"If you have a closed network and you go to an open network, chances are you're going to lose some market share," Johnson said.
Matt McGinness, an analyst at Cerulli Associates, said the aggressive hiring, the new location and a spate of fresh product offerings are part of the company's efforts to make its funds more attractive to advisers. "You have to learn to sell your product again in a competitive environment," he said. "You have to take a long, hard, honest look at your product and realize where you have gaps and where you're weak."
Indeed, American Express spokesman David Kanihan said opening the Boston office is part of a larger strategy to ramp up the company's asset management business to compete with the largest in the industry. In the past year, the firm launched a group of sub-advised products called AXP Partners Funds. It hired a new chief investment officer. And it has a new product in the works: the AXP Large Cap Equity Fund, which the firm expects to launch in the second quarter.
"We're serious about this business," Kanihan said. "It's a key growth engine. We need to be a top player in it."
The new hires will take over a series of domestic equity products that had previously been managed in Minneapolis. Thakore will oversee the AXP Growth Fund and a variable annuity called VP Growth. Chase will take over equity portions of AXP Mutual and VP Managed, while the Minneapolis office will continue to manage the fixed-income portions of those products. Ewing will manage VP Capital Resources. He will also oversee the new AXP Large Cap Equity Fund when it launches.
Meanwhile, the fate of five managers who had overseen those products is uncertain, Johnson said. Some, he said, could be laid off.
"Right now we're working on some transitional plans," he said. "We're not able to say where these folks will land. Some of them will stay with the company; some of them won't."