Mutual fund companies agree: In today's fiercely competitive market, sheer bigness and the economies of scale it brings can mean the difference between success and failure.
What they don't agree on is how to get bigger. Many companies have chosen the acquisition route to scale up, while others have looked to internal growth.
One fund business in the latter camp is OppenheimerFunds. The New York mutual fund company is known for its solid money management, strong marketing, and shrewd strategizing.
And if president and chief executive officer Bridget Macaskill has anything to say about it-and she does-the company won't become known for blockbuster acquisitions.
"The only way we can ever hope to realize a payback on that is by basically taking out huge amounts of cost, which basically means slashing a lot of people, a lot of jobs, pushing the two companies together," said Ms. Macaskill. "It's a painful process. It's a risky process because it's very disruptive. You risk losing a lot of people."
Ms. Macaskill spoke about the subject and gave her thoughts about banks, the fund business, and the scramble for talent during a recent interview with American Banker.
She said her company-the fourth-largest seller of mutual funds through banks-has no plan to de-emphasize its relationships in that channel. That's despite the fact that bank sales of nonproprietary funds throughout the industry have risen far more slowly this year than last, she added.
"It's still a very, very important channel for us, and we will continue to maintain it," said Ms. Macaskill. "Our bank sales will be up significantly this year."
Oppenheimer sold $1.5 billion of mutual funds through banks last year, making it No. 4 behind Putnam, AIM, and Franklin. It's shooting for $2.2 billion of sales this year and the No. 3 slot. The company had total sales of $9 billion last year.
Overall, Ms. Macaskill has lofty goals. She wants to increase assets under management from almost $80 billion to $100 billion by the end of 1999. And she plans to do it without acquisitions-short of an unexpected opportunity like a deal that would give the company overseas distribution.
Oppenheimer has made small acquisitions during the last two years. But they were meant to close product gaps, not to bulk up.
It bought the Quest For Value Funds, a $2 billion-asset value-oriented family, from Oppenheimer Capital, an unrelated company, in 1995. And it bought the $1.5 billion-asset Rochester Family of Funds, which focuses on bonds, in 1996.
Such decisions prompt industry watchers to call Oppenheimer exceptional.
"They don't just make asset plays-and we all know it's about having a lot of assets-they make strategic acquisitions," said Joy P. Montgomery, a consultant in Morristown, N.J.
Said Ms. Macaskill: "What lay behind the Quest and the Rochester acquisitions was the sure knowledge that if we took funds which had good track records and limited distribution and pushed that product through our distribution network, you could leverage the sale of those funds enormously quickly."
Still, the company's asset growth of 46% last year was due more to net inflow through sales and appreciation than to acquisitions, she said.
Oppenheimer's internal growth, which has come from adding funds, attracting customers, and managing money well, must continue at a fast clip, said Ms. Macaskill.
"You can never afford to sit back and say, 'O.K., we're now big enough. We don't have to worry anymore. We can just coast,'" she said.
But the company, the country's 15th-largest fund manager, needn't fear that it will be gobbled up by an acquisitive competitor anytime soon, observers said. Massachusetts Mutual Life Insurance, which took an 80% stake in Oppenheimer in 1990, is unlikely to let the fund company go.
"They've turned out to be a real winner for Mass Mutual," said Burton Greenwald, a consultant in Philadelphia.
Ms. Macaskill said one growth area for Oppenheimer should be the "instividual" market. The neologism-meaning a combination of retail and institutional business such as in the 401(k) market-makes the CEO wince, but she has embraced it nonetheless.
Oppenheimer must strive, said Ms. Macaskill, to imbue more funds with the characteristics those clients demand-that they be narrowly defined and tightly managed to offer more predictability.
For bank customers, the company is touting its real asset fund as an ideal product. The fund, linked to returns on the commodities market, is meant to be a kind of hedging device within an overall asset allocation program.
While Oppenheimer is optimistic about growing through the bank channel, success is not guaranteed for banks themselves in the mutual fund business, said Ms. Macaskill. The sophisticated ones have a better chance of surviving what she sees as a coming shakeout.
"The good ones are becoming much more sophisticated, and I think the less sophisticated ones are going to lose market share big time," she said.
To gain and keep market share, banks must attract top-flight investment advisers.
"You're going to have to recognize where competition really lies. It's not with the bank next door. It's just as much with Merrill Lynch because you're competing for talent, you're competing for people, as well as competing for your client's dollar."
Ms. Macaskill's insights about banks come from more than the fact that her company sells mutual funds through them. Her husband, John Macaskill, is a managing director at Chase Manhattan in the corporate finance area.
If it's any comfort to banks faced with shelling out big bucks to lure talent, things are no easier for mutual fund companies. Ms. Macaskill called the competition for talent one of the toughest challenges the company faces.
"This is a business that has grown so rapidly that there are not enough good people really to go around," she said. "The competition for good people is ferocious.
"Unless you can provide people both a company that is growing and demonstrably successful, it's pretty hard to attract them in the first place or keep them in the face of some pretty competitive offers if you're either static or declining."
That's one good reason to keep growing. And economies of scale yield capital to hire talent as well as to invest in ever more sophisticated technology.
"It's really difficult to operate the way that companies could in the '80s," Ms. Macaskill said, "where as long as you delivered reasonable performance and a reasonable amount of marketing support, that was almost all it took."
Oppenheimer has changed much since 1983, when she joined as vice president of marketing. At that time, it offered only aggressive equity funds.
"The attitude was very much one of, 'Well, we know what's best for the client. And if they want to buy something else, they can go elsewhere for it.'"
Fourteen years later Oppenheimer offers a full range of well-regarded funds and has increased its assets from $5 billion to $80 billion. Much of the repositioning has come since 1990, when a group of managers led a buyout of the company from British Commonwealth and Holdings and Mass Mutual got its stake.
"Mass Mutual has pretty much let them run their own show, and they've obviously run it very, very well," said Mr. Greenwald, the Philadelphia consultant. Ms. Macaskill became president in 1991 and CEO in 1995. Before joining Oppenheimer, the native of Scotland was marketing director of a major United Kingdom dairy products company.
That company went through the same process Oppenheimer did in creating products to fit the market rather than having the market adjust to its offerings. It only sold whole milk in glass bottles. But gradually the company, responding to market demand, began selling 10 kinds of milk packaged in as many different sorts of container.
"It was interesting to me that the parallels between two totally different businesses were actually much closer than I had ever guessed it could be," she said.
