BARCLAYS GLOBAL INVESTORS BOSS TAKES A POWDER: WHAT NEXT FOR THE INDEX KING?

The king is gone. Long live the queen.

Fred Grauer’s 16-year reign as the king of indexing came to a sudden end earlier this month, as he resigned to pursue undetermined opportunities.

Patricia Dunn, co-chair (with Mr. Grauer) of San Francisco-based Barclays Global Investors since January 1997, has been named chairman and has taken Mr. Grauer’s place on parent Barclays Group PLC’s 10-member executive committee.

Industry observers were buzzing at Mr. Grauer’s sudden departure. They questioned why he would leave without any warning a business he had painstakingly built, and only three months after being named to the parent company’s executive committee.

But experts say Mr. Grauer’s departure poses no threat to BGI’s ability to manage money.

“They have a strong team there. We have a lot of confidence in Pattie Dunn” and chief information officer Blake Grossman, says Stephen L. Nesbitt, senior vice president, Wilshire Associates Inc. in Santa Monica, Calif.

Ms. Dunn says Mr. Grauer had accomplished everything he wanted in building the manager into a $565 billion behemoth — the world’s largest passive manager and one of the top managers of tax-exempt assets.

“I think he wants to go build something else,” she says.

Mr. Grauer could not be reached for comment. He said in a statement: “BGI is ready for its future as the No. 1 global investment manager, and I am very proud of its capabilities. At this point, I’m interested in brand-new challenges.”

But adding to the buzz, Mr. Grauer’s resignation was announced at the same time as that of Richard Reay-Smith, chief executive of Barclay’s British retail banking division, suggesting a boardroom shakeup.

The timing, Ms. Dunn says, was “completely coincidental.”

BGI staffers were “very surprised” by Mr. Grauer’s abrupt departure, Ms. Dunn acknowledges. But his decision to quit was in line with his character, she says. Once Mr. Grauer decided to leave, “I don’t think he wanted to hang around to be a lame duck, even for a minute,” she says.

Lindsay Tomlinson, chief executive of BGI’s European operations, adds it was “pretty clear” Mr. Grauer “would want to move along” within five years of the December 1995 sale of the former Wells Fargo Nikko Investment Advisors to Barclays.

Some industry sources, however, say they doubt Mr. Grauer would leave so suddenly with no job ahead. Mr. Grauer attended a series of BGI meetings at Glyndebourne, the opera festival in southern England, over the weekend preceding his resignation. From there he returned abruptly to San Francisco.

One rumor has it that he was seeking a raise, which would fit with Mr. Grauer’s reputation. “Fred is one very tough negotiator,” says one source who has been on the other side of the table from him.

Wilshire’s Mr. Nesbitt disagrees with the rumor mill. “I don’t think there’s anything suspect at all” in Mr. Grauer’s decision to leave, Mr. Nesbitt says.

He suggests the desire to be closer to his family — he has 10-year-old twin boys — might be a factor. “I know Fred personally,” Mr. Nesbitt says. “I think he felt it was time.”

Mr. Grauer joined Wells Fargo Bank’s quantitative investment unit in 1979, only to leave 18 months later to work in institutional sales for Merrill Lynch.

He was recruited in September 1983, when the business was on the brink of collapse, following the departures of top executives Bill Fouse and Tom Loeb, who formed cross-town rival Mellon Capital Management.

Starting with a base of $12 billion, Mr. Grauer was the architect of Wells Fargo Investment Advisors’ strategy and development.

He also negotiated the sale of half of the firm to Nikko Securities in 1990, and engineered the December 1995 sale of the entity to Barclays, which had both passive and active money management units.

Mr. Grauer has shared power with Ms. Dunn through most of the 1990s. Mr. Grauer is known more as the strategic thinker, while Ms. Dunn — who originally joined Wells on a part-time basis in 1976 — is noted more for her mastery of trading and execution.

In recent years, the firm has pursued higher-fee active quantitative strategies, which now make up 22%, or $126 billion, of BGI’s $565 billion in assets under management.

Ms. Dunn says BGI is going to expand its research and product development division, overseen by Mr. Grossman. BGI will focus on global strategies, particularly fixed income.

Ms. Dunn says she had no immediate plans to name an heir apparent. “I’m going to take a week or two on that one,” she laughs. “I expect to be here for a good long time.”

Crain News Service