Q&A: THOMAS LITTAUER "WE WANT TO BUILD AN ALL-WEATHER COMPLEX FOR ANY BUSINESS CYCLE"

Thomas Littauer turned heads last November when he left a promising post at Boston-based Putnam Investments Inc. to join the recently merged $200 billion-asset Scudder Kemper Investments Inc. and become president of its Chicago-based Kemper Funds unit.

After all, Mr. Littauer, 42, was considered heir apparent to current Putnam president William Shiebler, who has said he will step down within two years.

But Mr. Littauer says he has admired Kemper and its $50 billion-plus in assets from afar since the late 1980s, when he was overseeing sales for Oakbrook Terrace, Ill.-based Van Kampen American Capital.

Now after senior market positions at Boston-based Fidelity Investments and at Putnam — Mr. Littauer is leading the merged load and no-load complex’s sales through intermediaries, such as brokers, financial planners and banks.

He’s already begun to stir things up by yanking some popular Scudder funds, including Scudder Value, from the no-load channel and making them available through brokers under the Kemper name — just in time for tax day.

Q What’s the opportunity at Kemper?

A Kemper was one of the top money managers in the late 1980s. Then it made a decision to get into the brokerage business and took a large stake in Invest (Financial Corp.), a distribution company, and began to compete with a lot of the same firms it was asking to sell its funds.

The Street doesn’t respond favorably to that activity.

Since Kemper’s purchase by Zurich Insurance Group in 1996, Kemper has cleaned up the shop by divesting itself of the brokerage business (now a separate entity called Everen Capital Corp.) and Invest and is back to the basics of money management.

Q What are your priorities as you go down the road into the future?

A The pieces that make a successful fund company are its product performance, distribution relationships and service.

We have strong name recognition and the product side is an improving performance story led by the Dreman funds. We’ll be bringing out more products and hope to continue the improving performance story.

Sales have steadily improved over the last three years. Kemper did $6.75 billion in gross sales in 1997 and $2 billion during the first quarter of 1998.

Our sales/redemption ratio has greatly improved because of the resurgence in the fixed-income market. If the market cycle holds, we are on track to go north of $8 billion in gross sales this year and our net sales will be up considerably.

Q Your most recent announcements have centered on stock funds and appear to involve transferring products from Scudder to Kemper.

A We are introducing equity funds because that’s where 75% to 80% of the asset flows are now. Scudder has a large ability to manage equity assets.

We’re clearly looking to tap into the combined money management resources of Scudder Kemper to expand distribution.

We just launched six new funds: Kemper Emerging Markets Growth, Emerging Markets Income fund, Global Blue Chip, U.S. Growth & Income, International Growth & Income and Latin America Fund. Though these are managed by Scudder, you can’t purchase these funds on the no-load side.

We’re also moving three no-load funds — Scudder Value, Global Discovery and Classic Growth — into the intermediary world. Their names are being changed to Kemper and they won’t be available on a no-load basis to new shareholders after April 15.

Q Do you have any other plans for adding to your fund lineup?

A It’s a continuing process. We want to build an all-weather complex for any business cycle. We are strong in taxable and tax-free fixed income funds. We want to expand our offerings in domestic growth and value equity funds and in international products..

Q Your experience is in distribution. What changes are you considering in that area?

A We are very committed to partnering with intermediaries, not competing with them. If intermediaries believe that a mutual fund company is strategically aligned with them to grow their business and they are also bringing funds to the marketplace that are good for their clients on a long-term basis, you have the ingredients to build a very nice franchise.

Q Which sales channels appeal to you most?

A The channels are constantly evolving. All three are absolutely critical for a mutual fund company.

National brokerage firms currently represent 40% of our sales, financial planners 40%, and banks 20%. We would like to see that mix more balanced and increase bank sales.

Vite

Thomas L. Littauer, 42, president, Kemper Funds, Chicago; managing director, Scudder Kemper Investments Inc., New York.

Kemper High-Yield Fund (assets: $5.54 billion) 1-year, 15.8%; 3-year, 13.6%; 5-year, 11.4%

Kemper-Dreman High Return Equity Fund ($3.75 billion) 1-year, 40.1%; 3-year ,35.4%; 5-year, 22.9%

Lipper High Yield average: 1-year, 17.28%; 3-year, 14.08%; 5-year, 10.94%

Lipper Equity Income average: 1-year, 37.5%; 3-year, 25.9%; 5-year, 18.01%

Standard & Poor’s 500 stock index: 1-year, 48%; 3-year, 32.8%; 5-year, 22.4%

Returns for A shares as of March 31.

Source: Lipper, Kemper, CDA/Wiesenberger.