As president and chief operating officer of AIM Management Group's newest subsidiary, AIM Private Asset Management Group, Mark McMeans leads a division that represents fundamental change taking place at AIM Management Group of Houston.
"The challenge here is something that is a real watershed event at our company," McMeans said. "And that is from 1976 through last October we have been a mutual fund-only firm. We consider ourselves an asset management firm but our product has been mutual funds."
Although AIM offers a variety of fund products including hedge funds, sub-advised funds, variable annuities and offshore funds, it has never strayed from its fund-based product offerings until last October when it began offering eight different separately-managed portfolios.
McMeans is leading the effort to change the notion within AIM that the firm should offer strictly fund products. While some in the company - including McMeans - did not embrace that change initially, most of the skeptics have started to realize the importance of offering a diversified product line, he said. The backing of AIM's upper level management helped change some opinions too, he said.
"I think that what made this so much easier for us than for most companies is that the top of the house said from day one, and they said it several times, We're doing this. We're going in this direction. Let's figure out how to do it.' If the top of the house had not said it that way, I would guess that it would have been much more difficult to do from a cultural standpoint."
AIM Private Asset Management offers eight different investment portfolios which it sells through six different brokerage firms including Paine Webber of New York, which is the fourth largest distributor of managed accounts, according to McMeans. AIM Private Asset Management now has approximately $80 million in assets under management in its private portfolios.
While assets under management have fallen short of McMeans' initial projections, it is significant that AIM is even offering managed accounts since the idea was laughed at five years ago while McMeans was working at AIM Capital Management.
"This probably came to the marketing department and they came to investments and we said, Forget about it. That's the stupidest thing we've ever heard of,'" he said.
But the idea became less laughable as assets in separately-managed accounts increased and more fund companies began adding them to their product lines, according to McMeans. Many of AIM's wholesalers also began complaining that they were losing business because they did not have a customized product to offer brokers that served high-net-worth clients, according to McMeans. Around the beginning of 1999, AIM's founders asked McMeans to study the separately-managed portfolios and draw up a business plan.
What seemed like a "stupid" idea five years before made much more sense to McMeans when he started putting together the business plan for what was to become AIM Private Asset Management, he said.
"I was totally a convert when I put together the business plan," he said. "Before than I did not have much familiarity with [managed accounts]." He spoke with sales representatives and brokers who used AIM funds and who also offered managed accounts, he said.
In addition, he researched developments in the high-net-worth marketplace, studied the differences between funds and managed accounts and studied the tax advantages of managed accounts over funds. He discovered technology had made it much easier to offer managed portfolios and also lowered investment minimums, increasing the product's appeal in the retail markets.
McMeans' business plan convinced Robert H. Graham, president and CEO, and Gary T. Crum director of investments, that the managed accounts business would eventually change the mutual fund industry, he said.
"The way we looked at this was that this was a sea-change in the business in that we feel that everything that is over $100,000 is not going to go into a mutual fund in the future," he said. "We think the market is really going to bifurcate itself out to where less than $100,000 is going into funds and over $100,000 will go into alternative products, one of which will be, predominantly, customized accounts."
But rather then simply acquire an existing firm in the managed accounts business, AIM decided to build its private asset management business from scratch. While that approach requires more work establishing distribution, it offers some inherent advantages over acquiring a firm, according to McMeans.
For one, it is easier to integrate AIM Private Asset Management with AIM's other businesses, because that allows it to leverage AIM's existing businesses, he said.
"One leverage point is the investment staff," he said. For instance, AIM portfolio managers manage similar focused separately managed accounts with the assistance of a private client portfolio manager who is dedicated to customizing the managed account for individual clients, he said
"Operations is really one of the pressure points," he said.The private client portfolio managers allow AIM to use its portfolio managers' investment expertise without burdening them with the operations of the product, he said.
AIM Private Asset Management will also benefit from the 800 wholesalers who are being trained on how separate accounts work and how to sell them to brokers, he said. AIM is also developing a special managed portfolio sales force, which has in- depth knowledge of separate accounts, he said. That group will work in tandem with the wholesalers but also serve senior level brokers, he said.
But incorporating AIM Private Asset Management with the rest of the company has forced McMeans to change how people within AIM perceive the company, he said.
"The leverage points around the firm are significant," he said. "You're trying to morph the firm and get it to think in terms of asset management rather than just mutual funds and get them to turn in this direction. But you also have to add resources and specialize and tap into the major areas around the firm and not duplicate existing efforts. That's how you can take it mainstream and be a specialist at the same time."