One Good Turnaround Deserves...
Edmond D. Villani could hardly be more thrilled. The chief executive of Scudder, Stevens & Clark Inc., holding forth in his luxurious Park Avenue office, displays a chart showing Scudder's diversified U.S. equity mutual funds beating the competition at the 25 largest fund families for the 12 months ending on June 30. "It's a marked turnaround in performance," he gushes, referring to Scudder's mediocre long-term record. "We've got a lot of positive momentum."
Villani's going to need all the Big Mo he can muster for his next task--merging the newly rejuvenated Scudder with the struggling Zurich Kemper Investments Inc. He's also charged with turning the combined company, Scudder Kemper Investments Inc., into a global powerhouse. That's in the deal he struck in June with Zurich Kemper when Scudder's 200 partners decided to sell the 78-year-old firm for $2 billion.
The merger gives Villani access to Zurich Kemper's vast network of U.S. stockbrokers. He can sell investments through Zurich's offices in 50 countries. "Few firms will be able to match that level of distribution without going to great expense," says Burton Greenwald, a Philadelphia fund-industry consultant.
Distribution helps, but only as long as you have funds investors want. So Scudder will have to keep up the strong performance that has earned 15 of 41 funds top ratings from Morningstar Inc., the mutual-fund data service. Funds with four- and five-star ratings capture some 80% of new money flowing to funds. At Zurich Kemper, only 10 of 116 funds merit either of those ratings.
Kemper Funds, as the firm was known before The Zurich Group bought it for $2 billion from Kemper Corp. in 1995, has underperformed for years. The company was heavy on bond funds when investors turned to equity funds. And its equity funds have been lackluster, in part because of high management turnover. The flagship Kemper Growth Fund has run through four managers since early 1994.
Zurich Kemper also suffered a blow when star money manager David Dreman, whose firm it bought in 1995, left in June to set up shop independently. Although Dreman signed a five-year deal for Kemper to distribute his funds, he says that "the whole process of management is easier" with him working independently of Kemper.
Markus Rohrbasser, Zurich's chief financial officer, says Scudder will "materially strengthen the investment process at Kemper." But he also emphasizes that unit is already improving, and notes that net sales turned positive this year for the first time since 1992. The loser in the merger could be Zurich Kemper's chief executive, Stephen B. Timbers. Rohrbasser confirms that Timbers' future role has yet to be determined.
FRIEND OF BILL. So have many details about the merged company. Villani says that beyond combining certain back-office operations, "it's hard for me to tell what will be optimal for [combining] these organizations." For starters, he will clone some no-load Scudder funds and sell them as load products through Zurich Kemper's brokerage network.
By the accounts of those who know him, Villani, 50, is up to the task. He's an ambitious and personable executive who has shaken up Scudder's formerly sluggish ways. After attending Georgetown University, where he was a classmate and friend of Bill Clinton (he's still an FOB and has jogged with the President), Villani earned a PhD in economics from the University of Pennsylvania in 1973 and joined Scudder as an economist the next year. He eventually took over the firm's money-market funds, and from 1991 to 1996 was part of a triumvirate that ran Scudder.
Villani, who became CEO in May, 1996, played a key role in pulling off Scudder's rebound. He added 17 new funds, including a broad line of equity funds, and began to distribute funds through fund supermarkets such as Schwab OneSource. Villani also went outside for executive talent, especially in marketing. Industry consultant Neil Bathon of Financial Research Corp. says Scudder's marketing is "one of the strongest in the industry."
Still, Villani will have to muster all the talent he can--marketing, operations, and especially portfolio management--if Scudder Kemper is going to be worth the $4 billion that its Swiss-based parent has spent on it.