Charles E. ("Ed") Haldeman, Jr. is the chairman and CEO of Delaware Investments of Philadelphia. Delaware, which has been a subsidiary of Lincoln Financial Group of Philadelphia since 1995, had $88 billion under management as of March 31. That includes $35 billion of insurance company assets, $30 billion in retail money and $23 billion of institutional assets. Haldeman joined Delaware as its new CEO in January, 2000, and was named chairman of the board earlier this year. He was previously president and chief operating officer of United Asset Management of Boston.
Haldeman recently spoke with freelance reporter Lori Pizzani. An edited account of their conversation follows.
MFMN: What has been your primary mandate at Delaware Investments?
Haldeman: When I first came to Delaware in early January of 2000, the principle objective was to improve performance throughout Delaware. While some of our asset classes were doing well, many weren't as compared to specific industries or our peers. My core mission was to turn around our performance.
MFMN: Why was improving performance so important?
Haldeman: An asset management company can get into a downward spiral. Poor performance can lead to the departure of key investment managers. Losing those key people can then negatively impact performance which ultimately leads to a loss of assets. Asset outflows can cause even more departures and even worse performance, and so on. That's where we were. It's hard to reverse that spiral.
MFMN: Were you losing key people and assets?
Haldeman: Yes. We have publicly reported negative cash flows since Lincoln acquired us in 1995, and, although not made public because we were a private company prior to 1995, for several years before that. The number one reason was poor performance. In addition, in 1997, several prominent managers left to start their own firm which had an impact.
When I first arrived at Delaware my first impressions were that it was a great old firm with multi-asset classes and good retail, institutional and wrap account capabilities. But the depth of performance and key personnel departures had led to very low morale within the company.
MFMN: Have you now succeeded in turning around performance?
Haldeman: We've come a long way. In July of 2000, Smart Money had an article on the most dysfunctional fund families and, based upon five-year performance, Delaware was 98th out of 101 funds. That hurt.
Earlier this year, Barron's ranked our group, based upon performance at year-end 2000, in the 58th percentile. That's an improvement. Some of our bond funds are still lagging but our domestic equity funds are now in the mid-range and within our institutional business, two of our managed asset classes are in the top 10 percent.
MFMN: How did you accomplish that?
Haldeman: We changed our investment personnel and we refocused many of our investment strategies. In the 16 months since I signed on at Delaware, we have added 62 new people, while 62 people have left. For example, we [hired] a team of 20 fixed-income professionals from Conseco and have added six people to our large-cap value team. We also enhanced our large-cap value investment philosophy by no longer limiting ourselves just to those stocks with high dividend yields. We also refocused our efforts on our fundamental research and concentrated on our analysts' bottom-up stock picking, not market timing.
MFMN: What has the result been?
Haldeman: In the fourth quarter of 2000, we saw cash inflows of about $50 million - not a huge number - but inflows nonetheless. In the first quarter of this year, we saw an outflow of $50 million, so we are at break-even levels.
MFMN: Where do you see Delaware going in the next five years?
Haldeman: We are continuing to focus on asset management, both retail and institutional products. We want to be a multi-product fund company and continue to invest across multiple asset classes. We want to have the majority of our funds in the top one-quarter to one-third of our peer group on a consistent basis so that we can grow bigger through positive cash flows.
We also believe there is a chance that the retail mutual fund business over the next five years will switch over to focus on separate accounts and high-net-worth investors. We currently have $1.2 billion we manage through separate accounts, and we'd like to put more emphasis on this part of our business. But we are not currently in the high-net-worth channel.
MFMN: Do you see any obstacles to achieving those goals?
Haldeman: We don't have scale yet. We have thought about scale and that's a problem we need to think about. We recently announced that we would reduce the number of retail funds we offer to 49, by consolidating or liquidating 14 of our small funds that aren't large enough to achieve economies of scale.
MFMN: Have you entertained the idea of merging with another fund company?
Haldeman: Yes, we have. But we are not currently in negotiations with anyone, nor have we even spoken to any other company about this possibility.
MFMN: What type of company might you want to partner with?
Haldeman: The ideal partner would be a retail mutual fund complex with strong high-net-worth and separate-account businesses. We wouldn't want to partner with a big marketing-driven company, however. That would run counter to our investment-focused culture.
MFMN: What do you think are Delaware's strengths?
Haldeman: We have a strong investment team with lots of energy and commitment who are motivated to succeed. We have a very good distribution partner in Lincoln which offers us access to wholesaling talent and access to 2,000 financial planners Lincoln employs.
MFMN: What are Delaware's weaknesses?
Haldeman: Our reputation is our biggest weakness. That history of poor performance and departure of employees has hurt our reputation. Reputation is very important. When will you ever buy Firestone tires again?
MFMN: How are you working to change that reputation?
Haldeman: We have a new print advertising campaign that began the first week of May. Our ads will run throughout 2001 in publications mostly read by financial advisors.