Norton H. Reamer, president and chief executive officer of United Asset Management, is reaping the rewards of restraint.
Mr. Reamer has built a formidable money management business by giving loose, if not free, rein to the 49 investment boutiques he has acquired during the past 14 years. After all, he says, United Asset won't consider buying a company unless it has high regard for the managers.
"I'm as much of a control freak as the next guy, but they are going to do the best thing. I don't worry at all what someone's doing in Baltimore when I'm in Chicago," Mr. Reamer, 61, said in a recent interview on the 44th floor of United Asset's headquarters, which overlook Boston Harbor.
The company, which manages $177 billion of assets, has accomplished something most banks so far have been largely unable-or unwilling-to do with newly acquired asset management firms: maintain their entrepreneurial spirit and independence.
"Banks are not good at buying something and not touching it. They usually want to buy something and then put their mark on it," said Joy Montgomery, principal of Money Management Initiatives, Morristown, N.J.
For now, few banks have kept asset management areas separate, the way Mellon Bank Corp. has done with Dreyfus Corp., she said. A more likely model for banks would be First Union, which has built asset management around its Evergreen mutual fund company.
"Whether you're looking at United Asset or not, you're asking, what does it (an asset management company) bring to the table, and can you get an economy of scale? Most banks will not follow the UAM model because they like to merge, close branches or offices, and form one brand identity," she added.
Still, it's hard to argue with United Asset's track record. Compounded over a decade, revenues have grown by 22% a year, net income by 24%, and operating cash flow by 25%. The company ranks 15th among asset management companies.
United Asset has never closed a company for underperforming-and never needed to do so, Mr. Reamer said.
"As far as straightening out performance after a couple of bad quarters, we don't do that," he said.
Even when a small-cap fund at United Asset's Pilgrim Baxter & Associates, Wayne, Pa., did poorly during the early-year stock market correction, the president, Gary Pilgrim, did not receive so much as a call.
"We would not rattle him at all," said Mr. Reamer. (The fund has since recovered, returning 4.7% so far this year.)
That's not just a management style, it's a philosophy. After all, that's why United Asset buys into companies.
"We like the companies for those principles and the people. We like to encourage the people. In the market environment, it's hard to have any real big mistake," he said, adding:
"Have some firms done better than others? Sure. Have some firms grown less than you'd like? Sure. Have some firms grown a lot more? Thank goodness, yes. I think we've had a range of success. What we haven't had is any real disasters.
"We would never sell; we have a philosophy (that) we would never sell."
United Asset usually takes a 100% stake in the companies it buys, and generally keeps intact the top executives-often including the founders- name, headquarters, staff, core business, and management style.
Each boutique retains 60% of revenues for operations, while the parent company uses its 40% share to pay for joint marketing services for its companies and to help bankroll more acquisitions.
As United Asset searches for deals, it faces stiff competition in nearly every sector. Fidelity Investments' name comes up most frequently, as a competitor for asset management, mutual funds, and bundled defined- contribution plans. But with a few exceptions, Mr. Reamer does not consider banks his competitors.
"Money management started in the banks. Then it migrated out to places where money managers could be more unfettered in what they did. Now the banks are coming back into the arena. They're coming back with a better philosophy, with more independence for money management arms. But it remains to be seen how successful that will be.
"We probably have more competition in deals from Swiss banks than U.S. banks," particularly in acquiring money management firms, he said. He noted that Union Bank of Switzerland, Credit Suisse, and Swiss Bank Corp. have all bought U.S. asset management firms in recent years.
Meanwhile, new companies are constantly being brought into the United Asset fold, including Pacific Financial Research Inc., Beverly Hills, and Thomson Horstmann & Bryant Inc., Saddle Brook, N.J. Four United Asset executives are continually "roaming" for new acquisitions, Mr. Reamer said.
"We're developing relationships, often over a period of years. These are not unfriendly takeovers; it's a cultivation of deals," said Mr. Reamer.
"In the case of (Pasadena, Calif.-based) Provident Investment, I first called in 1981 and we didn't buy the company until 1985, which says a lot about my sales ability."
Another deal, to buy a Philadelphia equity manager, Cooke & Bieler, "carried on for years," he said.
Although United Asset is generally the suitor, more asset management companies are seeking it out, Mr. Reamer said.
United Asset companies have the advantage of being backed by their parent's deep pockets: $207.3 million in operating cash through March 31, on an annualized basis.
Top-performing managers at United Asset companies are rewarded in options (United Asset stock is traded on the New York Stock Exchange); "phantom" stock, based on new business brought in and business retained; and miscellaneous incentive payments, up to 40% of which are paid to second-tier management-an enticement to keep younger managers with United Asset, the firm said.
United Asset's compensation structure is not without critics. Some say mid-level managers are neglected in takeovers, prompting a brain-drain at lower levels. Others say top managers get too much, making them less hungry to perform.
"The question is, now that these guys (company partners) have sold, do they try less in terms of marketing?" said Steven D. Schwartz, an equity analyst at ABN Amro Chicago Corp., Chicago.
His conclusion, based on his own research and quarterly studies by Pension & Investments, is that a given company's performance neither declines nor improves after being bought by United Asset.
"Historically, they (UAM companies) have tended to match indexes like the S&P 500 and the JP Morgan Overseas Index," Mr. Schwartz said.
Yet even United Asset's critics say it excels at acquiring companies-and outfoxing competitors across product lines. In chasing a given company, United Asset may find itself vying with rivals such as First Union Corp., Liberty, New England Investment Cos., and Morgan Stanley, according to a study by Investment Counseling Inc., West Conshohocken, Pa.
Mr. Reamer got some ideas from Putnam Cos., where he managed the George Putnam Fund before serving, from 1975 to 1980, as president and chief executive of three of its investment management companies.
Mr. Reamer's notion of company as parent also had a model in an unlikely industry-advertising, which fostered creativity in smaller shops backed by a name firm.
"Investment management is much more entrepreneurial (than other financial services). I tried to have United Asset reflect that. No one had ever done it before," he said.
Mr. Reamer, who holds a master's degree in business from Harvard Business School and undergraduate degrees in economics and electrical engineering from Union College in Schenectady, N.Y., also saw potential in the money management industry, especially on the institutional side.
A recent focus for Mr. Reamer has been global growth.
"There's a lot that we're interested in. We doubled international assets in the last 18 months, from 8% to 15%," Mr. Reamer said. "We'd like to do a lot more."
