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Oppenheimer Acquires Firm in Wealth Drive

OppenheimerFunds' acquisition of Houston asset manager Gulf Investment Management last week is part of a three-year strategy to build its services for high-net-worth clients, a company official said in an interview. The move comes during a time when wealthy investors are increasingly demanding more advice and a greater customization to their products

Starting in April 1999 with the acquisition of institutional money manager Trinity Investment Management Corp., Oppenheimer has been building what its officers call a comprehensive line of services for the wealthy, including an array of managed accounts, donor advised-funds and a 529 program. In addition, the company began offering hedge funds in October of last year after buying hedge fund manager Tremont Advisors.

Gulf brings a large-cap value managed account to a broad line of current offerings at Oppenheimer. Oppenheimer's managed account offerings already include a tax-managed international ADR product, a global product, a tax-exempt product, an intermediate fixed-income product, as well as relative value and enhanced S&P vehicles.

Small-, mid- and large-cap separate accounts are in the works. The firm expects to launch the large-cap this quarter; the others will follow later this year.

"We're doing a lot really fast," said Donna Winn, president of OFI Investments, which serves Oppenheimer's wealthiest clients. "We're trying to build a whole suite of products."

Wooing the Wealthy

In what they see as an opportunity for exponential growth, companies are clamoring to attract the business of wealthy investors, said Christopher Davis, the executive director of a managed account industry group called the Money Management Institute. The reason, he said, is that wealthy clients are asking for more customized products that can help them duck heavy tax burdens.

"They have had a wonderful experience for the past two decades and now they are asking for something more," Davis said. "They're acutely aware of tax-sensitive money management."

In addition, like middle-class investors, the wealthy want more advice to help them weather perpetually turbulent markets.

Fund companies, such as MFS, Franklin Templeton, AIM Funds and its sister firm, INVESCO, have answered the call, generating solid business by luring the rich with managed accounts, he said. AIM, for example, launched its managed account business, called AIM Private Asset Management, in September 2000. The unit, which offers eight products, has garnered $356 million in managed account assets, up from $163 million at the end of September last year.

Data released by the MMI this month shows that managed accounts have thrived compared to mutual funds during the past year. Managed account assets declined by nearly $2 billion, or 0.5%, between 2001 and 2000, while mutual fund assets posted a far more dramatic decline of 8.1%, according to the MMI.

And the long-term picture is more promising, with managed account assets rising 25% during the past five years, according to OppenheimerFunds CEO John Murphy.

Despite the early success of the likes of MFS and AIM, Davis said there's plenty of room for fund companies to ramp up their managed account and high-net-worth services. "No one has anything stacked for or against them for managed account distribution," he said.

Still, Davis, as well as executives at Oppenheimer, which oversees $130 billion in assets, recognize that the high-net-worth business is no gravy train where fund companies can simply jump into the market and reap the rewards. He said failing in two key disciplines can ruin a fund company's managed account efforts.

A Different Animal

Firms have to "get the infrastructure right," he said. "Managed accounts are different than mutual funds in terms of technology support and operations. That is just vital or they're going to spin themselves down into a pool of butter very quickly."

And firms have to learn how to distribute managed account services using a new approach that starkly contrasts with the usual way of selling mutual funds, Davis said. While sales reps have typically regarded mutual fund distribution as a product-driven enterprise, managed accounts are regarded as a "process" or service, he said, which requires a more nuanced, consultant-driven sales pitch. "It's the slam-down vs. the consulting soft-sell," he said. "Some firms get it and some firms don't."

Winn, who spent 22 years at Merrill Lynch before joining Oppenheimer, said her firm has already gained a solid managed account platform from Gulf, in addition to an already capable infrastructure it had in place before this month's acquisition.

Additionally, she said, Oppenheimer moved away from product-oriented marketing of its mutual funds some time ago with services designed to help investors properly diversify their investments. That approach, she said, should help the firm in its efforts to market managed account services.

Benchmarks for high-net-worth sales haven't been set yet, Winn said. But she said, "We expect to grow over 100% this year because the marketplaces are growing very quickly and we're expecting to pursue them."