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What ails Dresdner?

The continuing exodus at Dresdner RCM Global Investors has seen the firm

struck off some IFAs&#39 buy-lists.

After losing head of global equities Bill Stack last summer, it proceeded

to lose all five major names on its UK equities desk, culminating in the

departure of star mid-cap manager Derek Lygo last week.

For the IFA community, alarm bells started ringing last September when UK

growth manager Justin Seager quit Dresdner for Jupiter. While IFAs were

disappointed that Seager was leaving, his assertions that the atmosphere

within Dresdner was stifling was the biggest worry.

By the time Seager left, small-cap manager Andrew Impey and head of UK

equities Stuart Fowler were already gone but the question was whether

Dresdner would be able to hang on to top managers such as Lygo and income

manager Paul Sheehan.

Despite Dresdner&#39s protestations that there would be no more departures,

both were gone within a year.

Dresdner is the first house to have haemorrhaged managers on such a heavy

scale since Scottish Widows moved Hill Samuel to Edinburgh last summer.

But the story at Dresdner is much more intriguing, with few people in the

industry able to put their finger on the problem.

Hargreaves Lansdown inv-estment manager Ben Yearsley believes that part of

the problem is a lack of self-promotion as well as poor broker support.

He says: “The problem is that they will not put anything into marketing or

promoting the company. There is no incentive to buy the funds and now they

have basically lost the whole UK desk in a year. We had most of those funds

on our buy-list and now the only one left is the UK mid-cap. And we are not

sure what to do with that – it will depend on who they get to take over.”

While Hargreaves has kept the mid-cap fund on its buy-list in the past

year, other IFAs decided several months ago that they did not like what was

happening at Dresdner.

Bates Investment head of research James Dalby says he removed all Dresdner

funds from his firm&#39s buy-list in May this year after Sheehan left for


Those that got out early were wise. After taking over the management of

the UK growth fund when Seager left in September, Derek Lygo&#39s performance

began to plummet across the board. By the time Sheehan left in May, Bates

finally took the decision that things were not right and removed Dresdner

funds from its buy-list altogether.

Dalby believes that Lygo&#39s poor performance over the past year could be

down to a number of reasons.

He says: “It could be the style, it could be morale dropping and it could

be some sort of top-level interference with the investment process. It is

going to be down to at least one or two of these things.

“At group level, I think there has probably been a lot of meddling in the

asset management level. If you look at Jupiter, which is also owned by a

German bank, they do not have that problem. I wonder if that would be

different if Jupiter was running under the Commerzbank brand like Dresdner

runs under its parents brand.”

Dresdner&#39s side of the story is that although it has been unfortunate to

lose several managers over the past year, things are already changing for

the better. Earlier this month, it recruited Lucy Macdonald from Barings as

head of global equities and its search for a UK growth manager is well

under way.

Head of UK equities Neil Dwane says there is no need to panic. He says: “I

have quite a talented team around me – we just have not got quite as many

people in the light like Derek was.”

Dwane suggests that the reason for Lygo&#39s departure may be that he was

disappointed to have not been given the role of head of UK equities when

Stuart Fowler left last summer. In his new job, Lygo will head the UK

equities desk at First State Investments. Explaining the departures of the

other four managers is not as easy.

The troubles of the past year have damaged Dresdner&#39s credibility in the

eyes of most IFAs and portfolio managers. The more optimistic believe it is

unwise to be too quick to write the firm off. Certainly, with the backing

of a parent the size of Dresdner Kleinwort Benson, its pockets are deep

enough to buy a strong UK team.

Credit Suisse Asset Management director Robert Burdett, who runs CSAM&#39s

multi-manager service, says the restructure that Dresdner will have to

undergo could turn out to be more positive than negative.

He says: “We are interested in looking at situations where there is

change. We are in a luxury position of building new portfolios from

scratch, so it was unlikely we were going to invest in Dresdner funds from

day one at the moment. But once things come clear, I think we may be

interested in looking at how it changes.”

The IFA community may need some convincing to jump back into Dresdner&#39s

funds. However, with Lygo staying until October, the company has the time

to ensure it hires a top-class mid-cap manager to take his place.

But if its choice fails to impress, it risks seeing its final UK fund

removed from IFAs&#39 buy-lists, leaving it in a precarious position in the

increasingly competitive UK retail market.


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