Evergreen Investments, an investment management subsidiary of Wachovia Corp., says it hopes to rebound from months of stagnant asset growth by broadening its products, distribution, and profile.
"For Evergreen, we need to get greater size," Dennis Ferro, its president and chief executive officer, said in an interview. "We are the 24th- or 25th-largest investment manager, and … we would like to be in the top 10. We think we can get there by improving the quality of our product and improving distribution."
The investment management unit already is large, with $249 billion of assets under management at Dec. 31, but after growing quickly during Mr. Ferro's first five years with the company, the business seemed to stall during 2005. The yearend asset total is only $2 billion higher than it was at the end of November 2004. Mr. Ferro became CEO in 2003; he had joined the company as chief investment officer in 1999.
Evergreen, which came to Wachovia in the First Union merger of 2001, had grown quickly as assets were boosted by large acquisitions and mergers - up 58% from 1999 through November 2004.
Neither the open architecture trend nor banks' distancing themselves from proprietary mutual fund families is to blame for the flattening growth curve, Mr. Ferro said. The parent company and its investment subsidiary Wachovia Securities are only a small part of Evergreen's distribution set-up, he said. Weak market conditions last year caused the slowdown, he said.
"Evergreen has always had its own brand and been completely separate from Wachovia," he said. "We were never the house brand. We are more of an affiliated investment manager than a proprietary fund unit. We don't have significant market share with Wachovia."
Most of Evergreen's distribution is through wire houses and other large broker-dealers. And Mr. Ferro said not being Wachovia's "house brand" was and is advantageous for Evergreen as it looks to distribute nationally.
He said he is confident that Evergreen can restart asset growth. "Expanding products, expanding retail distribution, expanding distribution internationally, and making selected acquisitions will allow us to grow," he said.
Analysts said Evergreen has lagged because it has chosen to stay away from alternative investment products.
"Evergreen has been sluggish because they have failed to stay with the more dynamic areas of the asset management business," said Richard X. Bove, an analyst at Punk, Ziegel & Co. who covers Wachovia. "Everyone is aware that growth is coming from hedge funds and alternative investments. Traditional money management is lagging. Wachovia has stuck with traditional products for too long."
Mr. Ferro said Evergreen is always looking for new capabilities. It offers a platform of alternative fund of funds for high-net-worth investors, he said, and has a strong private equity fund. "We will continue to build new product structures that will offer alternatives in investment management channels," he said.
Evergreen is persistently looking to reshape its menu of products and services, he added. In the past year it has consolidated four funds. Managing the product menu, he said, is an important part of managing the company.
"We are continuing to look to consolidate because that is an ongoing process," he said. "We did some last year, and we will continue to consolidate over the next two years."
Fund consolidations could make room for new portfolios without overwhelming the marketplace with too many products, Mr. Ferro said. The company on March 6 launched three Evergreen Envision Funds, a series of lifestyle funds. Each is a fund of funds with an underlying blend of Evergreen equity and bond funds geared for specific risk and return objectives.
Though asset growth has been flat, he said, Evergreen has demonstrated in the past five years an ability to generate strong investment returns. It is in the top performance quartile for the past five years, according to data from Lipper Inc., a Reuters company.
"When you think of Evergreen longer term, historically, I don't think it had a reputation for investment returns. I don't think it had a reputation at all," he said. "Now our marketing and our advertising are focused on our products and their consistent strength in the market."
The company started an aggressive advertising campaign last March that focused on building brand awareness. The campaign was the first by Evergreen to go into mainstream media outlets like The Wall Street Journal and television commercials.
Mr. Ferro said this year's campaign will cost the same as 2005's but will not use television; all the spending will go into print ads in publications such as the Journal, The New York Times, Barron's, and Pensions & Investments. This push is part of his company's strategy to expand distribution. Domestically, Evergreen will focus on distribution through large national broker-dealers and large independent investment advisers.
The company also wants to increase distribution in Europe and Asia, he said. Evergreen has an initiative in the United Kingdom to develop its marketing capabilities. Evergreen has $18 billion of fixed-income assets under management in London in its First International Advisors group, which has been managing international fixed-income assets since 1989.
To increase distribution in Asia, Evergreen plans to develop a presence in Hong Kong this year. It already has a partnership in Taiwan with a local investment advisory company and, rather than establish a retail presence in Asia, he said, wants to develop more distribution partnerships throughout the continent.
Salim Ramji, an analyst at McKinsey & Co., said scale would be crucial for driving growth. It is not unreasonable to expect individual fund companies to have as much as $2 trillion of assets under management by 2010, he said.
Mr. Ferro said Evergreen is looking for deals in order to keep pace. In October it bought a minority stake in Golden Capital Management LLC, a large-cap-equity portfolio manager in Charlotte. His company is working on another deal, he said, for a firm that would help Evergreen manage large-cap value assets.
"Our first priority when it comes to an acquisition is finding an attractive product that we don't offer the marketplace," he said. "If they bring that and some relationships in a new market segment that will enable us to expand distribution, then that would be a gold star. But the primary goal is great product."
Ultimately, Evergreen wants to become a more meaningful component of Wachovia's business overall, he said; it now supplies 4% of the parent's net income.
"We'd like to more than double that," he said. "I believe that this is a business that, when run well, has attractive product margins. We want to offer strong margins. We want to be a leading investment management company."
