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Scudder Kemper Forms Canadian Alliance

TORONTO - The Canadian arm of Scudder Kemper Investments of New York has abandoned plans to operate as a stand-alone operation, choosing instead to forge an alliance of an undisclosed nature with Investors Group of Winnipeg, Manitoba, the country's largest fund sponsor. The deal comes after Scudder fell short of making a major marketing breakthrough as a direct seller, despite several years of generally strong investment performance and heavy spending on advertising and marketing.

Scudder's new strategic alliance is also a recognition that fund sales in Canada are far more driven by intermediaries than they are south of the border.

"The marketplace and investors are very different in Canada than in the U.S.," said Gale Caruso, who has been president of Scudder Canada Investor Services since it began offering no-load funds in 1995.

Subject to regulatory approval, a new company called Scudder MAXXUM, to be based in Toronto, is expected to begin operations this summer. It will combine Scudder Canada Investor Services' $606 million in assets with $860 million held by Investors Group subsidiary MAXXUM Fund Management. (All figures are expressed in Canadian dollars.)

The two companies described Scudder MAXXUM as a "partnership." But, because Investors is contributing most of the fund assets and Jean-Guy Gourdeau, currently senior vice president of strategic initiatives for Investors Group, has been appointed president and CEO of the new company, Investors appears to be the dominant partner. But, the two companies declined to say whether Investors is the controlling shareholder.

Also, Caruso's role as head of the stand-alone Scudder operation has been downgraded to being a member of the board of directors of Scudder MAXXUM.

"Scudder has other things they want me to do," she said, referring to the company's corporate headquarters in New York.

Both Gourdeau and Caruso declined to shed light on the governance of the new company other than to acknowledge that Gourdeau would also be a director.

The two firms did disclose plans to create a new family of Scudder funds, to be managed by Scudder Kemper and distributed exclusively through Investors Group's agency sales force of 3,700. The new Scudder load funds will be integrated with other product lines offered by Investors to permit switching between fund families.

The launch of the adviser series of funds sold through Investors will complete the transformation of Scudder to multi-channel distribution. Initially, Scudder sold only directly to investors in Canada. But faced with an insufficient response to its direct appeal, Scudder gradually expanded its distribution network of discount and full service brokerages.

"We decided we weren't going to dictate how Canadians could invest with Scudder," said Caruso.

While forging the alliance with Investors, Scudder is expanding its involvement as a money manager for insured investment funds, known in Canada as segregated funds. It manages two funds for the WealthGuard family launched earlier this year by Zurich Life Insurance Co. of Canada, a corporate affiliate of Scudder. London Life, of London, Ontario, also plans to introduce Scudder-managed funds.

For Investors Group, the new venture represents a further broadening of its distribution strategy. Until its acquisition of the MAXXUM funds in November of last year from London Life, an affiliated company, Investors' mutual fund sales efforts focused exclusively on distribution through its proprietary sales force.

Under the Scudder MAXXUM structure, the MAXXUM funds will continue to be marketed through independent brokers and dealers. They are to be added this summer to Investors' product list. The Scudder funds, meanwhile, will continue to be available directly from the company.

For Canadian clients who currently invest directly with Scudder, there will be very few changes, said Caruso. They will continue to have access to the same funds, the same money managers and the same services. Despite carrying the new Scudder MAXXUM banner, the new venture will not make the MAXXUM funds available directly to investors.

The move into direct sales is especially notable for Investors, whose marketers have up until now extolled the benefits of working with financial advisors. The partnership is committed to maintaining the direct channel, said Gourdeau.

Despite the uncertainty over ownership structure as a result of the lack of disclosure, both parties were at pains to suggest that their new relationship will continue indefinitely.

"We're confident we're entering a relationship which will generate significant strategic benefits," said Sanford Riley, president of Investors, in a telephone conference call with reporters. Riley said the venture will augment the operations of both the Scudder and MAXXUM funds by giving them access to new distribution channels.

Caruso said the venture with Investors advances Scudder's strategy of expanding its mutual fund business in Canada, and is a recognition that the market keeps growing and shifting.

"We did not come and enter business here with a short term time horizon," she said.