LAGGING PANAGORA SHAKES UP INVESTMENT MANAGER TEAM: COMBINING DOMESTIC, FOREIGN UNITS INTO ONE GLOBAL DIVISION

Boston’s PanAgora Asset Management, one of the first and biggest companies to allocate its investments among different asset classes, has lost its chief investment officer in the midst of an internal reorganization.

Paul R. Samuelson, son of Nobel economics laureate Paul A. Samuelson, quietly resigned from the $15 billion-asset quantitative investment shop last week to start his own consulting business. He has been replaced by Peter Rathjens, who previously headed PanAgora’s international equities group.

But at PanAgora — which consultants say has been a middling performer recently — it’s out with the new, in with the old. While Mr. Samuelson is leaving after about four years, William Zink, who was with the firm for its first nine years, is returning to spearhead the restructuring of its $6 billion indexed products unit. Mr. Zink left for about a year to join hometown rival State Street Global Advisors.

Mr. Samuelson says his departure is amicable. In fact, PanAgora will be the first — and so far the only — client of his new firm, Samuelson Portfolio Strategies of Newton, Mass.

“It’s time for me to make this change,” says Mr. Samuelson, whose first project for PanAgora will be to assist in developing two European bond funds for DG PanAgora, the Frankfurt-based joint venture with Germany’s DG Bank.

The changes at PanAgora don’t end there. The firm, which oversees mainly institutional assets and subadvises mutual funds such as the $25 million Principled Equity Market Fund for F.L. Putnam Investment Management Co. of Newton, Mass., also is combining its U.S. and international equity accounts into one global division.

PanAgora, which is owned by Boston mutual fund giant Putnam Investments (no relation to F.L. Putnam) and Nippon Life Group, Japan’s largest insurance company, says the reorganization of its equity groups will help it improve the assessment of investment opportunities. The new division, currently made up of seven portfolio managers, will be headed by Mr. Rathjens.

“It’ll help us to evaluate companies like Sony or Exxon by comparing them to both their U.S. and foreign counterparts,” says Bruce Clarke, PanAgora’s chief executive officer. “We’ll all be talking a common language.”

PanAgora’s $2.9 billion Tactical Asset Allocation accounts were up 13.9% in 1997 and an annualized 19.8% for the three years ended Dec. 31, 1997, according to the Pensions & Investments Performance Evaluation Report. The median TAA return was 21.3% and 21.2%, respectively.

While many European firms take a global approach, most U.S. managers view domestic stocks as vastly different than foreign stocks.

“PanAgora is a little ahead on the curve on this one,” says David Brief, a senior associate at Ennis Knupp and Associates, an investment management consultant in Chicago. “But it seems to make sense.”

PanAgora also is beefing up its ability to offer customized index funds by building a new team, called the structured investment strategies group, under Mr. Zink.

The company had relied on portfolio managers from different areas to develop strategies for its $6 billion in passively managed assets. The new group has three managers and is soon likely to add a fourth.

“(PanAgora) enticed me,” says Mr. Zink of his decision to come back. “The reorganization that was done here to pull passive investments together into one group seemed like a very positive move to me.” He hasn’t been replaced at State Street.

Mr. Zink says PanAgora has no intention of going head-to-head with such industry giants as State Street or Barclays Global — both of which dominate the market for indexing. Instead, PanAgora will focus on niche markets, such as funds that are measured against socially responsible benchmarks.

Even so, PanAgora is likely to find its push into passive investments an uphill battle. The firm faces heady competition and the margins aren’t all that great.

“It’s a very difficult business,” says Ennis Knupp’s Mr. Brief. “Indexing is somewhat of a commodity and there’s little that distinguishes one firm’s indexing business from another’s.”