Deutsche Bank plans to replenish a unit hit by defections to Merrill

It is recruiting prospects for its $200 billion index fund operation

August 14, 1999|By BLOOMBERG NEWS

NEW YORK -- Deutsche Bank AG, the world's biggest bank, said it is moving to shore up its $200 billion index fund management unit after the defections of 11 key executives to Merrill Lynch & Co. and the potential loss of more than $50 billion in assets.

Deutsche Asset Management, which manages $300 billion in assets in the United States, including $200 billion in index funds, is "recruiting to fill the open positions in the near future," a spokeswoman said yesterday.

The unit also brought back Kathleen Condon, the Bankers Trust Corp. executive who started the business in the 1970s. Deutsche bought Bankers Trust in June.

Its index fund business, the third-biggest in the country, could unravel because, as high-profile clients leave, others may follow. For managers of index funds, designed to mimic broad benchmarks, the amount of assets managed is key because profit margins are thin.

New York City officials said this week that they are considering dropping Deutsche Bank as manager of $50 billion, questioning its expertise in the wake of the staff defections. That business yielded just $1 million in fees.

That decision will be watched closely by "anybody that's on the edge," said Lawrence Davanzo, managing director at Asset Strategy Consulting, a pension consultant in Los Angeles. "It could put a lot of money up for grabs."

New York City's $92 billion fund will start a search for an index manager next week. The pension fund reopened the bidding process because Deutsche Bank lost its head of index management and other employees to Merrill.

Those departures have led Georgia-Pacific's pension fund to yank money from Deutsche Bank.

Others monitoring Deutsche Bank's situation include the Los Angeles County Employees' Retirement Association in Pasadena, Calif., for which Deutsche Bank manages $7 billion of the $26 billion fund; the $110 billion New York State Common Retirement Fund, which uses Deutsche Bank to manage $1 billion in a fund that seeks to mimic the Morgan Stanley Capital International EAFE index; and Fidelity Investments, for which Deutsche Bank is a sub-adviser for six mutual funds worth $32.8 billion; and Scudder Kemper Investments Inc.

Pension consultant Wilshire Associates "is confident that, with over 300 employees at Deutsche Asset and Kathy Condon at the helm, losing some employees will not cripple the firm or its structured product business," said Roz Hewsenian, a principal at the Santa Monica, Calif.-based firm.

Wilshire's clients have about $2.2 billion in indexed assets with Deutsche Bank.

Kenneth Shaffer, the Los Angeles official, said Condon's role was vital for Deutsche Bank's attempts to keep its index business intact.

Last month, index investments chief Frank Salerno and four managing directors left Deutsche Bank to establish Merrill Lynch Quantitative Advisors. They have since been joined by six other ex-Deutsche Bank employees who left because "life at Bankers Trust in the last 12 months was less than easy," said Dean D'Onofrio, a former Bankers Trust executive who recruited them to the new Merrill unit he heads.

Deutsche Bank has suffered an exodus of traders and other employees from its Deutsche Banc Alex. Brown unit in Baltimore.

Pub Date: 8/14/99

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