HARTFORD, Conn. - Perhaps no other investment management firm better exemplifies its corporate namesake and feathered icon than Phoenix Investment Partners of Hartford, Conn, the asset management subsidiary of insurance company The Phoenix Cos.
Just like the mythological red and golden Phoenix bird that was believed to have regenerative powers and was fabled to have burned then risen anew from its ashes, Phoenix Investment Partners has proven that it, too, has the ability to be almost magically resurrected.
The firm's almost serendipitous rebirth is the result of Phoenix choosing to build a separately managed account business instead of focusing exclusively on its then-in vogue, but struggling, mutual fund family.
That murkier path has led Phoenix to its current place among the top six consultant-style separate account managers. The spot that has landed Phoenix squarely on the radar screen of dozens of financial services distributors, many with enterprising financial intermediaries catering to very wealthy investors.
What's more, the firm has won kudos for being the first to aggregate its separate account managers, the first to centrally handle the back-office needs of its array of managers, and the first to offer multiple managers through a single salesperson.
Former naysayers are now closely watching Phoenix's successful formula, and trying to imitate its model for growth.
In 1995, amid a recently completed reverse merger with Duff & Phelps and its mutual funds' operation whimpering along with negligible assets, marginal success, no real focus and an uninspired sales force, Phoenix began acquiring all or an interest in smaller, niche money managers. The aim was to build up its mutual fund business.
"When I joined Phoenix in November of 1995, it had been a single [growth] style, single product company," said John (Jack) Sharry, now president of Phoenix's private client group. "The thought was to build out, and have a variety of product managers in all of the Morningstar style boxes," he said.
Sharry had been hired to build the firm's mutual fund business from Putnam Investments of Boston where he had served as national sales manager selling annuities.
In March of 1996, Phoenix bought an approximate 30% stake in international manager Aberdeen Fund Managers of Fort Lauderdale, Fla., the U.S. investment management unit of Aberdeen Asset Management of Scotland. And in the fall of 1997, the firm acquired niche growth manager Roger Engemann & Associates of Pasadena, Calif.
But soon after the ink was dry on these first two acquisitions, Sharry became intrigued. Each manager had a small but thriving business in managing the assets of wealthy investors and institutions through separate accounts. In fact, late in the negotiations to acquire its third firm, Seneca Capital Management of San Francisco, Seneca executives casually mentioned that it had just won a spot on Morgan Stanley's managed accounts platform, Sharry explained. "It struck me that this was the way to go if we wanted to be a player," he added.
A Wing and a Prayer
Secretly crossing his fingers and praying the effort would work, Sharry convinced upper management to refocus the company's resources and energies on building a separate account business for Phoenix. The plan was to leverage the investment prowess of the acquired managers, restructure a strong proprietary wholesaling team, and provide a higher level of servicing to outside distributors than competitors.
Further bucking the trend of the rest of the industry, Phoenix would take over and centralize the marketing, sales and distribution functions for its acquisitions - and then let them manage money autonomously from their long-established offices, as far away as California and London.
To date, the firm has selectively acquired 11 outside managers, the latest purchase being that of Kayne Anderson Rudnick Investment Management in January 2002.
Seven years later, with a total of $9.4 billion, or 17% of its $53 billion total assets in separate accounts, Phoenix now has bragging rights to being the sixth-largest SMA program manager at year-end 2002, according to Cerulli Associates of Boston. Admittedly, Phoenix's separate account business is far behind veterans, including Citigroup, with more than $61 billion, Merrill Lynch, with over $27 billion, and Brandes Investment Partners, with nearly $22 billion. Together these three leaders have secured 29% of the $384.1 billion consultant separate account business, according to Cerulli.
But even with its tiny 2.5% sliver of the universe, Phoenix has outpaced the likes of heavyweights Affiliated Managers Group, Alliance Capital, Lazard Asset Management and Mellon Financial. "Phoenix really is the little engine that could," said Sharry from his ground level office overlooking historic downtown Hartford.
Moreover, the Phoenix model of acquiring successful niche asset managers then fusing them into a managed accounts initiative has been copied by several firms.
The Phoenix Takes Flight
Once the firm put its first three managers in place and began to win recognition from some notable wirehouses as well as regional broker/dealers and independent financial advisors, Phoenix turned its attention to added-value services.
It hired a product specialist steeped in the complexities of managed accounts to train the firm's team of 18 wholesalers. Phoenix also invested heavily in technology, initially as a main training tool for its wholesalers. The firm now has 24 external wholesalers, down from a high of 40 before budget cuts prevailed, paired with an equal number of internal wholesalers.
The driving force for success was a disparaging comment made by a Merrill Lynch executive, who early on expressed his doubts. "He said, we don't think you can do multiple managers'," Sharry said. "That was a good whack in the head and drove us to organize (our efforts)," he added.
By late 1998, at a meeting with those same Merrill executives, the whole issue of whether or not Phoenix could represent multiple managers had evaporated, Sharry noted. "That was a turning point for us," he said. Phoenix's investment managers were then in a number of programs and the firm was writing 3,000 to 4,000 investment proposals per month, he added. "We crashed the club, and everyone was asking, who are these people?"
Even more confusion ensued with Phoenix's non-traditional sales approach. Instead of showing brokers how its managers' could outperform their client's existing managers, Phoenix took a "let's all get along" stance, choosing to show how its managers' capabilities would dovetail with other managers' strategies.
Phoenix also embarked on a course of helping financial advisors to build their businesses, rather than just sell product. That's been accomplished largely through nationwide meetings and seminars and on-going assistance from Phoenix's employees. In June 2001, the firm hired Stephen Gresham, a former consultant to Phoenix, to head up the firm's sales and distribution efforts and spearhead outreach efforts.
The firm has also continued to build a vast, but user-friendly, technology platform that allows for advisers to access a wealth of information, educational materials, workbooks, statistics and data via the Web and customize the site to their needs.
The technology platform also links to the firm's extranet so that both internal and external wholesalers can access additional areas that contain more sensitive company information. A sophisticated built-in customer relationship management system allows for every phone call to and from each intermediary to be tracked in detail, along with each rep's year-to-date sales and historical as well as detailed sales data, among other features. "Phoenix is very responsive to our inquiries and our clients' inquiries," said Louis Chiavacci, a SVP with Merrill Lynch Private Advisory Group's Coral Gables, Fla., office. Chiavacci and his team manage a collective $1.1 billion for about 50 affluent families. "We need good, intelligent responses."
"The support we get from Phoenix, from the wholesaler to the home office, ranks among the most effective we encounter," said Greg Miseyko, SVP with The Brief Miseyko Group, an office of Morgan Stanley in Boca Raton, Fla. "They are a proactive group of people, offering good ideas that are sometimes a bit out of the box'," he added.
For Phil Hartwell, CFP, adviser and branch manager with Hartwell Financial of Torrance, Calif., a Royal Alliance affiliate, "out of the box" meant out on the water.
Taking a suggestion from his Phoenix wholesaler Mike Gohlke, Hartwell invited two investment managers, one of them from Phoenix's stable, to speak at an educational meeting with his clients - on the Queen Mary docked in Los Angeles. Clients came early to see the Titanic exhibit and then hear the managers speak, Hartwell recalled.
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