Morgan Stanley is quietly hunting for a new top executive to run its investment management business, one of the world's largest — albeit shrinking — money management operations.
According to several industry sources, the brokerage firm's top executives are looking for a "bona fide investment star" to lead Morgan Stanley Investment Management, the $399 billion unit that's been run by a management troika for much of the past year.
Morgan Stanley executives, led by co-president James Gorman, have made it a top priority to improve the money management operation this year after it posted a $1.2 billion loss in the fourth quarter of 2008 and saw its assets under management slide roughly 34%, or $206 billion, since the end of May.
Now Morgan Stanley executives are looking for someone who can help rebuild the business and return it to profitability.
"They're after a high-profile, pure-investment-management mind, and not someone who has been born out of a broker-dealer culture," said a source familiar with the search, requesting anonymity.
A spokeswoman for New York-based Morgan Stanley declined to comment. But a number of sources in the investment management industry separately confirmed that a search is proceeding at full throttle.
Independently, five sources noted that Morgan Stanley has retained a boutique executive-recruiting firm — New York-based Jamesbeck Global Partners LLC — to conduct the search. Ashton McFadden, managing director at Jamesbeck, declined to comment.
In the wake of last year's devastating decline in asset values, Morgan Stanley is in the process of restructuring MSIM and recently reduced its 800-person head count by 9%.
Until recently, MSIM was led by Jay Mantz and Stephen Trevor, who ran the merchant banking group, and Stuart Bohart, who managed all of the non-merchant-banking units within MSIM. Mr. Mantz was re-positioned to focus exclusively on MSIM's real estate business.
SOLE LEADER
The executive that Morgan Stanley is seeking would effectively take the place of these co-heads, giving the business a sole leader for the first time since former MSIM president Owen Thomas was elevated to chief executive of Morgan Stanley's Asian operations in February 2008.
"They need some centralized leadership and someone who has a clear strategy for improving performance across the entire business," said David Trevena, managing director at New York executive search firm Westwood Partners LLC.
"And if it's a big name that has some cachet with retail and institutional investors, that wouldn't hurt either," he said.
To that end, recruiters noted that many of the top chief executives in the money management world are deeply entrenched in their organizations, with many holding substantial ownership stakes in their companies.
Others — such as Peter Krauss, chairman and CEO of New York-based
AllianceBernstein, or Robert Reynolds, president and CEO of Boston-based Putnam Investments — have been in their posts only for a short time.
However, there are a number of quality leaders available who have recently left large asset managers or may be in a "No. 2" spot at a top firm, Mr. Trevena pointed out. He suggested that individuals of the caliber of
BlackRock Inc. vice chairman Bob Doll, former
Goldman Sachs Asset Management co-head Eric Schwartz, and former
UBS Global Asset Management CEO Brian Storms would be well-equipped for the assignment at MSIM.
BlackRock and Goldman are based in New York.
UBS is based in Zurich, Switzerland.
At the moment, of course, it's unclear whom Morgan Stanley might bring in, but it is apparent that the job won't be easy.
The new executive will have the responsibility of turning around — and possibly determining a strategic position for — a troubled retail and institutional money management business.
The company's U.S. retail and intermediary fund channel consists of Morgan Stanley and Van Kampen Funds of Oakbrook Terrace, Ill., as well as the MSIM retail money market funds.
These businesses had $160 billion in combined assets at the end of last year, compared with $262 billion just 12 months earlier — a 38% drop — according to Morgan Stanley's 2008 annual report.
Van Kampen has suffered the most, with its assets sinking 44% during the year to $84 billion.
Overall, the investment management business now accounts for just a small portion of the company's collective revenue stream, contributing about $1.3 billion, or 5%, to the $24.8 billion in total revenue that Morgan Stanley generated in 2008.
In the fourth quarter, MSIM's revenue dropped by almost 90% because of credit and real estate losses, as well as a drop-off in administration fees.
Since then, Mr. Gorman and other Morgan Stanley officials have repeatedly reaffirmed their commitment to turning the business around.
"Improving our financial performance in asset management is a top priority," Colm Kelleher, the company's chief financial officer, said in a December earnings call. "Asset management is facing significant head winds in 2009, with a decline in assets under management and a difficult environment for gathering assets."
Nevertheless, "this business remains a critical component of our strategy," he said.
This is particularly true now that Morgan Stanley has agreed to combine its brokerage force with New York-based Smith Barney, a merger that will only increase the firm's distribution platform — and its ability to sell its asset management products through an even larger armada of advisers.
"But first you need to have the investment performance," said Cindy Zarker, director at Boston-based Cerulli Associates Inc. "Firms can find a number of ways to distribute their in-house products through their reps, but you can't do it if your performance is lagging."
E-mail Mark Bruno at [email protected].
