Executive in charge of revitalizing Credit Suisse Asset Management

A little more than a year into its high-stakes makeover, Credit Suisse Asset Management LLC is waging an uphill battle to improve its investment performance and gain credibility among financial advisers.

The New York-based company, which manages nearly $300 billion, including $66.9 million in long-term mutual fund assets, has implemented tighter risk controls and is relying more on quantitative analysis.

It has also hired numerous money managers and analysts from well-known investment shops.

“We have to do a better job of managing money,” says Jeffrey M. Peek, who is responsible for running all the asset-gathering businesses of Credit Suisse First Boston Corp.

powerful ally

Toward that end, Mr. Peek has hired a new global chief executive for the asset management unit: Michael E. Kenneally, former president of investment management and chief investment officer for Charlotte, N.C.-based Bank of America Corp.

That may be the most important hiring decision Mr. Peek has made since quitting as chief of the asset management unit of rival Merrill Lynch & Co. Inc. in January 2002 to become vice chairman in charge of First Boston’s financial services division.

First Boston is part of the Zurich-based Credit Suisse Group.

If Mr. Kenneally is successful in turning around the asset management unit, Mr. Peek is sure to gain a powerful ally in First Boston chief executive John Mack, who is a big fan of the money management business.

The hard-charging Mr. Mack, whom First Boston brought in more than a year ago to whip its troubled investment banking operation into shape, views asset management as key to offsetting revenue volatility that comes with investment banking.

If Mr. Kenneally falls flat on his face, the asset management unit may find itself on the auction block – at least as far as its operations in the United States are concerned.

“I wouldn’t be surprised at some point if Credit Suisse sold its U.S. asset management business, because it’s really been a disaster,” says Geoff Bobroff, a mutual fund consultant in East Greenwich, R.I.

Suzanne Fleming, a spokeswoman for Credit Suisse Asset Management, says there is no possibility that it will be sold.

Regardless, the unit has a long road ahead of it. First, it must erase its reputation as a company with little or no investment talent – thanks to a string of contentious mergers that sent some managers running.

Then it must stanch a torrent of asset outflows on both the institutional and retail sides of its business.

The unit’s U.S. institutional assets had dropped 53.8% to $11.5 billion as of Dec. 31, from 24.9 billion a year earlier, according to sister publication Pensions & Investments.

On the mutual fund side, the unit’s stock and bond funds had net outflows of $1.75 billion last year, compared with 2001 outflows of $816.1 million, according to Financial Research Corp. in Boston.

Even more telling: The firm’s funds weren’t able to attract fresh assets when the market was zooming.

In 1999, as the bull market approached its peak, its long-term funds bled $1.4 billion.

Critics say the reason is that performance has been mediocre – at best.

Consider, for example, Credit Suisse Emerging Growth.

The $350 million mid-cap-growth fund lost 24.31% over the 12 months through last Thursday, compared with a loss of 24.83% for the category average, according to Morningstar Inc. in Chicago. It lost 27.82% over the three-year period, versus a loss of 24.44% loss for the category average.

Then there is Credit Suisse Japan Growth, which cranked out a 260.26% return in 1999.

The $370 million fund lost 33.14% for the 12 months through Thursday, versus 18.95% for the average Japan stock fund tracked by Morningstar, and 40.73% over the three-year period, compared with a 26.84% loss for the category average.

Just 19% of the Credit Suisse stock and bond funds tracked by Morningstar beat their category averages over the 12 months through last Monday, 25.49% over three years and 48.78% over five years.

“They are definitely not a standout,” says Gregg Wolper, a senior analyst at Morningstar.

That lackluster performance has been exacerbated by the company’s efforts to integrate businesses it acquired in recent years, namely BEA Associates, DLJ Asset Management Group and Warburg Pincus Asset Management.

The integration of those businesses led to a host of staff defections and layoffs.

Things may be looking up, however.

Year-to-date through last Monday, nearly 65% of the Credit Suisse funds tracked by Morningstar were beating their category averages.

Still, it remains to be seen whether the firm will be successful in its bid to court advisers.

Steve Plump, a managing director and co-head of the subadvisory/ managed-accounts business, declines to shed much light on the company’s sales efforts.

It employs 10 external wholesalers, all of whom sell both mutual funds and separate accounts, he says.

“This is a firm that really has a history on the retail side, and we’ve looked at the relationships that each of the three [acquired] firms have had, and tried to build on top of that,” Mr. Plump says.

The company is mulling the formation of an independent advisory board to open up a dialogue with advisers. But all that means nothing if the company can’t improve its track record of managing money. Toward that end, the it has made a number of key hires recently.

In July, it hired Greg Sawers as global research head from New York’s Alliance Capital Management LP, where he was a portfolio manager.

The firm also hired Marian Pardo, a money manager from JPMorgan Fleming Asset Management in New York, as a managing director and co-manager of the U.S. large-cap-growth equity investments.

“Advisers put high value on good performance,” Mr. Plump says. “Performance is absolutely critical.”