Brinson facing defections by key employees

Some employees of the Chicago money manager are expected to bolt in the first quarter of next year after they receive the final installment from a 1994 buyout and their annual bonuses. About 200 of the firm’s 1,400 employees are receiving buyout payments. About 15 have already given notice.

Recruiters and asset managers say they have been receiving resumes from Brinson employees, but CEO Benjamin F. Lenhardt says any exodus will be minimal.

If a large number of investment managers and executives – or just a few key ones – walk out, it will be a blow to a firm that already has taken a lot of knocks this year.

Clients have yanked $12.8 billion from the firm’s portfolios, and founder Gary Brinson is retiring in December. Losing others would make attracting customers all the more difficult – plus, defectors might take business with them.

“For any firm, anytime you have a combination of an ownership change, managerial turmoil, poor performance and personnel turmoil, that’s a bad thing, unequivocally,” says David Brief, director of research for Capital Resource Advisors, a Chicago investment consulting firm. This spring, Mr. Brief’s firm recommended that its clients close Brinson domestic equity accounts.

Clients are keeping an eye out for more upheaval.

“Any kind of organizational change that may have an effect on our relationship is something we’re interested in and concerned about,” says William Butler, executive director of the Indiana Public Employees Retirement Fund. Brinson manages $432 million for the fund in an index portfolio.

Brinson is attempting to reassure clients – pointing out that defections so far are limited to a small number – and asserting that it has deepened its bench.

To retain people, Brinson is rolling out new incentive-based compensation plans that will make up for the shortfall that would otherwise occur after the payout runs its course, Mr. Lenhardt says.

Some key players gone

Hoping to prepare an orderly exit for employees who wanted to leave, Brinson earlier this year announced that people could leave before January without forfeiting the final installment of the equity program.

The program was put in place in 1994 when Swiss Bank Corp. bought out Brinson. Equity stakes were extended to more employees until Union Bank of Switzerland bought Swiss Bank in 1998. At that point, the 11-year payout was accelerated.

Still, Brinson is losing some key players.

Bart Holaday, who manages the firm’s private-equity practice, is leaving at the end of the year. Already gone are Rich Carr, co-head of global equity, and Denis Karnosky, co-head of asset allocation.

Another recent exit is Ron Martinez, the former managing director of account management. He says he was planning to leave, regardless of the accelerated buyout, because he wanted to teach finance and spend more time with his family.

He doesn’t anticipate a mass exodus because the early buyout of equity stakes takes away the reason to wait around until January.

The firm is trying to get its arms around personnel issues after a challenging year.

Mr. Brinson, a legendary money manager, announced his retirement in March amid negative investment returns. After his announcement, the firm started to hemorrhage deposits. Through June, the firm lost 158 accounts worth $12.8 billion, while it gained only 14 accounts worth $832 million. Mr. Brinson was unavailable for comment.

Organizational changes have also roiled the company. Mr. Brinson’s retirement was a prelude to

a merger between Brinson and Phillips & Drew Ltd., another subsidiary of UBS Asset Management. The combined firms oversee $200 billion in assets.

“This is a company in transition,” says Kathy Graham, president of HQ Search Inc., a Geneva, Ill., recruiting firm that works with Chicago financial service companies. “Gary Brinson isn’t going to be there, and when management changes, it’s not unusual to see personnel changes, too.”

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