The future that most blue-blooded of City institutions Queen?s brokerage, Cazenove -- as an investment bank catering the corporate carriage trade may well depend on how successfully it woos regular blokes with a quid or two to invest.
That anyway is the conclusion some observers draw from Cazenove’s poaching last month of a gaggle of five topflight portfolio managers from HSBC. The five -- Tim Russell, Chris Rice, Steve Cordell, Julie Dean and Wade Pollard -- who together oversaw more than £2 billion ($3.1 billion) of British and Continental stock funds at HSBC, are to run similar funds at Cazenove, including some pitched at the retail market.
The bespoke brokerage’s strategy appears to be to use the relatively steady revenue stream from asset management to help underwrite its expansion into corporate finance and smooth out that gilded activity’s remunerative but erratic earnings en route to Cazenove’s expected IPO in April 2003.
Cazenove expects to release at least three new equity funds within weeks of the new recruits’ arrival later this year, says Andrew Ross, head of the brokerage’s fund management business and himself an ex-HSBCer -- he headed the bank’s European asset management operation. Ross says the new funds will be “exact replicas” of HSBC’s onshore U.K. equity funds run by star managers Russell and Rice, whose “business cycle” approach to investing has enabled them to regularly outperform their peers and benchmarks.
Rice’s onshore European Growth Fund at HSBC ranked sixth out of 93 funds in its peer group for the three years through August, declining just 6.8 percent compared with the nearly 24 percent drop in the FTSE world ex-U.K. index. Russell’s onshore U.K. Growth and Income Fund ranked 34th out of 278 like funds over the same period, losing 9.6 percent compared with a nearly 25 percent drop in the FT-all share index.
Pursuing everyday retail customers might seem to be out of character for a 179-year-old firm whose private clients tend to keep a minimum of £750,000 in their investment accounts. But Robin Minter-Kempe, head of Cazenove’s retail funds business (and yet another renegade from HSBC), insists that the firm’s products have always been available to anyone willing to invest as little as £1,000. Rather than waste time going after retail clients directly, however, Cazenove plans to approach them through intermediaries.
Russell, Rice and colleagues didn’t join Cazenove purely in pursuit of career satisfaction: They were all given equity stakes in the firm.
Ross, who was Russell’s boss at HSBC before leaving to join Cazenove in November 2001, says the new team joined the brokerage because “they wanted to come to a place where they will be responsible for building a strong, independent investment business.” Yet HSBC’s travails of late no doubt helped push the disgruntled portfolio managers out the door.
Earlier this year the bank enfolded asset management within a newly organized Corporate Investment Banking and Markets division, chaired by HSBC board director Stephen Green, who has a reputation for striking a red line through underperforming businesses. Bonuses for the poorly performing investment banking unit were slashed by two thirds for 2001. Many bankers got no bonuses at all, and since January, 43 have quit and a further 117 have been fired from HSBC’s European investment banking unit.
Although the CIBM division’s fund managers didn’t suffer bonus cuts, they did pick up on the dismal morale and felt the same uncertainty as the bankers did about HSBC’s commitment. “The problem of being large,” says one HSBC fund manager, “is that there can be a culture that is more about preserving assets under management than being innovative about investment style and winning more business.” HSBC has some £189 billion in assets; Cazenove, £8 billion.
“We are totally committed to fund management,” counters HSBC’s Green. “This is not a team whose departure we wanted, but we have plenty of talent internally among our 80-odd fund managers and will recruit as necessary to ensure we have the resources.”
HSBC must be concerned with stanching not only a hemorrhage of people but also of assets. Meera Patel, senior funds analyst at U.K. advisory firm Hargreaves Lansdown, says that there will be a “massive outflow of funds from HSBC once Russell and Rice start managing at Cazenove.” She describes their departure as a “massive blow to HSBC.”
