"We have taken three companies ranked between 40 and 100 in the league tables of the world's biggest asset managers and created a top ten player," declares Paul Bateman, new global CEO of J.P. Morgan Fleming Asset Management. "The danger is that you overly institutionalize everything and dissipate the energy of individuals. We've worked hard to keep the best of the cultures intact."
Preserving cultures is only one of the challenges Bateman faces as he tries to sort out the asset management agglomeration that is J.P. Morgan Fleming. London-based but worldwide in scope, the firm is a mishmash of managers and investment styles.
Moreover, like most of its peers, J.P. Morgan Fleming has seen its assets shrivel in this bear market: Total assets have fallen from $643 billion at the end of 2000 to some $540 billion as of June 30, a 16 percent drop. This is somewhat worse than at most of its rivals. And unlike most of its peers, J.P. Morgan Fleming has some special problems all clamoring at once for attention: pension client defections, uneven performance and high costs.
Bateman is not unfamiliar with trial by merger or with corporate culture clashes. A graduate of Leicester University, he joined U.K. retail financial services group Save & Prosper in 1967 as an actuary, was appointed head of marketing and product development 17 years later and became CEO in 1988.
Seven years later he joined parent company Robert Fleming Asset Management as executive chairman. For a short time he served as CEO of the firm created by Chase Manhattan Corp.'s takeover of Robert Fleming Holdings, Chase Fleming Asset Management. That was before the bank went on to acquire J.P. Morgan and force yet another name change.
After that merger, which gave rise to J.P. Morgan Fleming, Bateman took charge of Europe and Asia, while his Morgan counterpart, Ron Dewhurst, oversaw the U.S. business. When Dewhurst quit for personal reasons to return to his native Australia in October, Bateman took command globally, reporting to investment head James Staley.
Now 56, Bateman is tall, quite dry and serious, but not stuffy: He used to shock the snobs at hoity-toity Fleming by eating in the canteen with the troops.
Bateman's most pressing job may be to straighten out the institutional business, source of 67 percent of J.P. Morgan Fleming's assets. J.P. Morgan Investment Management was in a fair amount of turmoil at the time of the September 2000 Chase merger. Former Morganites point the finger at ex-investment head Ramon de Oliveira, who insisted on pushing Morgan into retail asset management.
In the late 1990s de Oliveira embarked on an ambitious mission to build an electronic platform for the "mass affluent" market. To fund this vision, de Oliveira put a cost squeeze on J.P. Morgan's institutional business. Several hundred million dollars later, the project was quietly abandoned. De Oliveira resigned in May 2001.
The roll call of top executives who left Morgan purportedly because of unhappiness over the de Oliveira regime includes Keith (Kim) Schappert, onetime president and architect of the firm's institutional business success in the 1990s, who is now CEO of Federated Investors; Wesley Paul, former head of global investments, who now runs his own hedge fund; and Thomas Madsen, head of global equities, who is filling the same role at UBS Global Asset Management.
Bateman's repair work necessarily revolves around bringing in pension accounts. The new head of the U.S. institutional group, 25-year J.P. Morgan veteran Eve Guernsey, is making a big push to sell international equity management to U.S. pensions. "My sense is that clients will be adding between 5 percent and 10 percent to their allocation to international equity, and we are in a great position to benefit," she says.
J.P. Morgan Fleming will need new clients to dig itself out of a hole. It has suffered a string of institutional client defections, including ING Financial Services and the San Bernardino County Employees' Retirement Association (a $470 million account). And California Public Employees' Retirement System has placed the firm on watch, according to Institutional Investor's Money Management Letter. Meanwhile, the J.P. Morgan unit, hitherto one of the most successful U.S. managers in the U.K., has lost accounts from AstraZeneca (£350 million, or $547.6 million) Ciba Specialty Chemicals (£32 million) and Unilever (£600 million).
Bateman recognizes that bolstering performance is key. "We are an active investment management house, so when you strip everything else away, clients come to us to beat benchmarks," he says. The old Fleming business is performing well, but institutional needs urgent remedial action. The core U.S. equity product is a whopping 5 percent below its benchmark, and bonds are spotty. To help grow the U.S. retail business -- a centerpiece of Bateman's strategy -- he has appointed Andrew Spencer CIO of J.P. Morgan Funds. Spencer, who played a pivotal role in building Fleming into a retail force in Europe (the firm recently won the best overall manager accolade from Standard & Poor's), is viewed as one of Bateman's most capable lieutenants. Bateman, meanwhile, has had to reduce costs even as he tries to grow the business. Starting with a non-U.S. cost base of $800 million, he has shed $210 million, mainly by slashing U.K. back-office and administrative jobs.
Ultimately, Bateman aims to boost J.P. Morgan Fleming's 18 percent operating margin to well beyond the industry average of 23 percent. He would also like asset management to kick in a much larger share of J.P. Morgan Chase's profits than the 5 percent it does today.