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Phoenix's Meteoric Managed Money Rise

HARTFORD, Conn. - Perhaps no other investment management firm better exemplifies its corporate namesake and feathered icon than Phoenix Investment Partners of Hartford, Conn, the asset management subsidiary of insurance company The Phoenix Cos.

Just like the mythological red and golden Phoenix bird that was believed to have regenerative powers and was fabled to have burned then risen anew from its ashes, Phoenix Investment Partners has proven that it, too, has the ability to be almost magically resurrected.

The firm's almost serendipitous rebirth is the result of Phoenix choosing to build a separately managed account business instead of focusing exclusively on its then-in vogue, but struggling, mutual fund family.

That murkier path has led Phoenix to its current place among the top six consultant-style separate account managers. The spot that has landed Phoenix squarely on the radar screen of dozens of financial services distributors, many with enterprising financial intermediaries catering to very wealthy investors.

What's more, the firm has won kudos for being the first to aggregate its separate account managers, the first to centrally handle the back-office needs of its array of managers, and the first to offer multiple managers through a single salesperson.

Former naysayers are now closely watching Phoenix's successful formula, and trying to imitate its model for growth.

In 1995, amid a recently completed reverse merger with Duff & Phelps and its mutual funds' operation whimpering along with negligible assets, marginal success, no real focus and an uninspired sales force, Phoenix began acquiring all or an interest in smaller, niche money managers. The aim was to build up its mutual fund business.

"When I joined Phoenix in November of 1995, it had been a single [growth] style, single product company," said John (Jack) Sharry, now president of Phoenix's private client group. "The thought was to build out, and have a variety of product managers in all of the Morningstar style boxes," he said.

Sharry had been hired to build the firm's mutual fund business from Putnam Investments of Boston where he had served as national sales manager selling annuities.

In March of 1996, Phoenix bought an approximate 30% stake in international manager Aberdeen Fund Managers of Fort Lauderdale, Fla., the U.S. investment management unit of Aberdeen Asset Management of Scotland. And in the fall of 1997, the firm acquired niche growth manager Roger Engemann & Associates of Pasadena, Calif.

But soon after the ink was dry on these first two acquisitions, Sharry became intrigued. Each manager had a small but thriving business in managing the assets of wealthy investors and institutions through separate accounts. In fact, late in the negotiations to acquire its third firm, Seneca Capital Management of San Francisco, Seneca executives casually mentioned that it had just won a spot on Morgan Stanley's managed accounts platform, Sharry explained. "It struck me that this was the way to go if we wanted to be a player," he added.

A Wing and a Prayer

Secretly crossing his fingers and praying the effort would work, Sharry convinced upper management to refocus the company's resources and energies on building a separate account business for Phoenix. The plan was to leverage the investment prowess of the acquired managers, restructure a strong proprietary wholesaling team, and provide a higher level of servicing to outside distributors than competitors.

Further bucking the trend of the rest of the industry, Phoenix would take over and centralize the marketing, sales and distribution functions for its acquisitions - and then let them manage money autonomously from their long-established offices, as far away as California and London.

To date, the firm has selectively acquired 11 outside managers, the latest purchase being that of Kayne Anderson Rudnick Investment Management in January 2002.

Seven years later, with a total of $9.4 billion, or 17% of its $53 billion total assets in separate accounts, Phoenix now has bragging rights to being the sixth-largest SMA program manager at year-end 2002, according to Cerulli Associates of Boston. Admittedly, Phoenix's separate account business is far behind veterans, including Citigroup, with more than $61 billion, Merrill Lynch, with over $27 billion, and Brandes Investment Partners, with nearly $22 billion. Together these three leaders have secured 29% of the $384.1 billion consultant separate account business, according to Cerulli.

But even with its tiny 2.5% sliver of the universe, Phoenix has outpaced the likes of heavyweights Affiliated Managers Group, Alliance Capital, Lazard Asset Management and Mellon Financial. "Phoenix really is the little engine that could," said Sharry from his ground level office overlooking historic downtown Hartford.

Moreover, the Phoenix model of acquiring successful niche asset managers then fusing them into a managed accounts initiative has been copied by several firms.

The Phoenix Takes Flight

Once the firm put its first three managers in place and began to win recognition from some notable wirehouses as well as regional broker/dealers and independent financial advisors, Phoenix turned its attention to added-value services.