AMVESCAP PLC

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AMVESCAP PLC

30 Finsbury Square
London EC2A 1AG
United Kingdom
Telephone: 44 (0) 20 7638 0731
Fax: 44 (0) 20 7638 0711
Web site: http://www.amvescap.com

Public Company
Incorporated: 1997
Employees: 6,844
Total Assets: $7.33 billion (2003)
Stock Exchanges: London New York
Ticker Symbol: AVZ
NAIC: 523920 Portfolio Management; 551112 Offices of Other Holding Companies

AMVESCAP PLC is one of the largest independent investment managers in the world, a global player. Principal brands include AIM, INVESCO, and Atlantic Trust. Through mergers and acquisitions, AMVESCAP has developed significant footholds in the North American, European, and Asian markets and offers a sweeping range of products and services.

Southern Roots: 1970s–80s

AMVESCAP PLC's early history is tied to the ambitions of two men. After stints as an engineer, Navy officer, and stockbroker, Charles W. Brady signed on, in 1964, with the trust department of Atlanta's Citizens and Southern National Bank. When regulatory changes allowed banks to register with the Securities and Exchange Commission as investment advisers, his employer created, in 1971, Citizens and Southern Investment Counseling Co. Loan problems for the bank would open a door of opportunity for Brady later in the decade.

In 1978, Brady and eight other employees bought the investment business, renamed it INVESCO, and set out to capture the large corporate pension fund clients of major banks. As the company's assets under management grew, so did Brady's ambitions. He wanted to expand internationally. In the mid-1980s, he sold 45 percent of the company to U.K.-based, publicly held Britannia Arrow, which also owned London's Montagu Investment Management (MIM). The deal was problematic from the get-go and Brady ended up selling the rest of INVESCO to Britannia in 1988. The company, renamed INVESCO MIM, had $14 billion in managed assets at the time.

Brady stayed on to run the Atlanta-based U.S. operations and Britannia's Denver mutual fund business. The future of the company was jeopardized by a string of problems: London-based trusts performance dropped off; expansion in Europe and Asia proved costly; and investigations into sales practices and fund management were in progress in the United Kingdom. In the United States, however, sales remained strong.

As a result, in 1993, Brady was named CEO and the company was renamed INVESCO PLC. In 1995, the operation had $83 billion in assets under management and $78 million in operating profits from $300 million in revenues, according to Institutional Investor International.

Meanwhile, in Houston, another company had been getting under way. Charles T. Bauer left American General Insurance Co. when plans for a spinoff or sale of the $1.8 billion capital management unit he had built failed to materialize. In 1976, Bauer—a Navy pilot in World War II—and five former American General managers, including Robert H. Graham and Gary T. Crum, formed AIM Management Group, with $487,000 in capital and a $2 million line of credit. The group held 38 percent of the company and two outside investors held the rest. The firm struggled, nearly tanking in late 1980. In a last-ditch effort, an institutional money market fund with deeply discounted fees was introduced. In a year the company had $2.5 billion in assets.

Success bred success and new equity funds were launched. Then in 1986, AIM purchased the Weingarten Fund, Constellation Fund, and Charter Fund, which formed their core product line. Aggressive marketing boosted assets under management to $9.9 billion by 1987. Because its assets were primarily in money market funds at that time, AIM sustained little damage when the equity market crashed.

International Aspirations: 1990s

Between 1989 and 1993 AIM really took off, and assets under management grew from $12 billion to $25.3 billion. New products and strong fund performance helped drive the growth. But like his counterpart in Atlanta, Bauer wanted more and looked beyond American borders.

The death of one of the original outside backers provided the opportunity. Dutch insurance company Nationale Nederlanden became a new investor. A merger, in which the Dutch company became International Nederlander Group (ING), put a halt to its plans to exercise the right to buy a controlling interest of AIM, which had appreciated in value beyond what ING wanted to pay. In 1993 Bauer, Graham, Crum, and 60 AIM insiders gained 70 percent control of the company in a leveraged buyout backed by Boston concern TA Associates.

In 1996, INVESCO and AIM announced plans to merge. INVESCO brought its international presence and AIM its strong distribution system to the table. Brady would serve as chair, with Bauer as vice-chair.

Graham, AIM president and cofounder, headed up the North American retail fund business: AIM's $61 billion under management and INVESCO's approximately $20 billion. AIM's funds, carrying sales charges and annual fees, were sold by intermediaries such as stockbrokers and financial planners, while INVESCO's no-load funds were sold directly to investors.

The pair's stock strategy differed as well: AIM was more aggressive, buying companies whose earnings were on the rise and selling when profits fell. The more conservative INVESCO leaned toward value stocks, those that were inexpensive relative to value of the company.

AIM's strategy propelled it to a spot among the top U.S. mutual fund companies, but the booming mutual fund industry was no small factor in AIM's success. Assets under management had risen from $50 billion in 1976 to $3.3 trillion in 1996, according to the Houston Chronicle.

Business Week called AIM "one of the fund industry's hottest companies," about the time of the merger. The company's annualized growth had exceeded the industry during the 1990s and helped put its sale price at a premium.

"More important, performance is what sells mutual funds in the U.S., and that's where AIM has excelled: Eight of its 18 rated funds have earned either four or five stars, the highest rating from Morningstar Inc., the mutual-fund data company," wrote Gary McWilliams and Heidi Dawley for Business Week. Yet AIM had a vulnerable spot—its reliance on growth stocks.

The $1.6 billion merger came during a time when a number of investment management companies were consolidating to bring a broader range of products and services to customers from a single source. The INVESCO/AIM deal, completed in early 1997, was one of the largest deals to date. The new company, AMVESCAP PLC, held $200 billion in funds under management.

But the urge to merge was not satisfied. LGT Asset Management was up for grabs. The global operation had been losing assets, peaking at $65 million in early 1997. By acquiring the company, AMVESCAP would gain market share in key areas of the world where it had little or no market share. Included in the deal was GT Global Inc., an international mutual fund company strong in Asia, as well as Chancellor LGT Asset Management, a U.S. institutional money management company.

AMVESCAP was particularly interested in enhancing its position in the personal retirement account segment of the international market. A global shift from government and corporate pensions to personal retirement accounts was taking place, according to INVESCO Global unit CEO Michael Benson, in American Banker. The United States' own growth in the mutual fund industry had been part of that trend.

INVESCO Global handled non-U.S. retail and institutional marketing and had offices in France, Italy, The Netherlands, Japan, Hong Kong, Canada, Argentina, and Bermuda. Funds also were marketed in Eastern Europe and the Middle East. GT Global put the company into the German market for the first time and propelled it up the ladder ranking foreign-owned investment companies in important markets, including Japan.

Even with increased size, AMVESCAP faced a number of challenges in the global marketplace. Banks dominated the U.K. and continental European investment markets, according to American Banker, and they were reluctant to distribute independent funds. Investment firms tried to make inroads into the market by putting emphasis on fund performance.

Moreover, most fund sales in Europe, Japan, and elsewhere in Asia were made via banks, brokers, and financial planners. AMVESCAP was positioning itself for direct sales in those regions. Establishing a brand name on a worldwide level was a costly endeavor and the GT Global acquisition was expected to help. Following the acquisition the level of assets under management from investors outside the United States rose to 14 percent.

The 1998 LGT purchase, at $1.3 billion, established AMVESCAP as a truly global company. But company executives knew that mere physical presence was not enough to ensure success. "Many people go overseas and wind up with an outpost that does a little research and tries to solicit accounts, and that's what they call global business," Brady told American Banker in 1999. "You've got to design a product from the ground up in the country you're in. You're not going to dictate it from some other part of the world."

Company Perspectives:

AMVESCAP's mission is to Help People Worldwide Build Their Financial Security, and we do that by delivering superior investment performance and client service around the world. Our overall goal is to become one of the top players in every market we choose to compete in.

Mergers, the kind that helped AMVESCAP grow, had their pluses and minuses. Other financial services companies, such as Alliance Capital Management, Merrill Lynch & Co., and Fidelity Investments, had experienced integration problems. AMVESCAP found the governing structure challenging when it brought together INVESCO and AIM, and when AMVESCAP took another quantum leap with the purchase of LGT, operating margins took a hit.

Complications in the New Century: 2000–04

In 2000, AMVESCAP positioned itself as a leading financial company in Canada with the purchase of Trimark Financial Corporation, and in the United Kingdom through a deal for Perpetual PLC. Acquisitions in the growing Australian and Taiwanese markets followed.

National Asset Management, a U.S. concern, was added in 2001, and enhanced institutional product offerings. That same year, AMVESCAP moved to secure the assets in the rapidly growing segment of wealthy individual investors with the establishment of Atlantic Trust Private Wealth Management. The company commenced gathering firms serving high-net-worth individuals: Pell Rudman in Boston, Whitehall Asset Management in New York, and Stein Roe Investment Counsel.

Despite the growth by acquisition, AMVESCAP had been feeling the strain of the steep market drop-off that had begun in 2000. Heavy into growth stocks, the company had been hit harder than most. INVESCO Funds Group, for example, had used the rise of technology stocks to grow from $16 billion in managed assets in 1998 to $55 billion in 2002.

Aldo Svaldi reported for the Denver Post, "At one point, the group received nearly $1 out of every $20 going into a mutual fund, not an easy feat considering its smaller size." The Denver-based operation confidently entered into costly endeavors of acquiring naming rights for the Broncos' new stadium and erecting a new headquarters. Furthermore, when the company shifted to load stocks in 1998, it established its own distribution network instead of dovetailing with AIM.

About mid-year 2003, AMVESCAP started to merge some funds into AIM to try to stem the negative flow of assets. Yet bad news continued. Late in the year, New York Attorney General Eliot Spitzer, the Colorado attorney general, and the SEC brought trading abuse charges against INVESCO Funds and its former CEO. Although the unit was a relatively small part of INVESCO, the brand name was tarnished. AMVESCAP took a fourth quarter charge to cover anticipated costs related to the investigations.

Principal Subsidiaries

AIM Management Group Inc.; INVESCO PLC.

Key Dates:

1976:: AIM is founded in Houston.
1978:: INVESCO is founded in Atlanta.
1997:: INVESCO and AIM merge to form AMVESCAP PLC.
1998:: The purchase of LGT Asset Management solidifies the company's position as a global operation.
2003:: Investigation of the financial industry hits U.S. fund business.