DEAL WATCH: EX-NORTHERN TRUST QUANT TRIO STARTS FIRM BY THE NUMBERS, AMSOUTH BANCORP. GETS THE BALL ROLLING FOR NEW OAKBROOK INVESTMENTS WITH A $50 MILLION NUDGE

War between the North and the South — more precisely, between Northern Trust and AmSouth Bancorp. — has broken out in Lisle, Ill., over $900 million in managed assets.

The struggle began when three top executives left Northern Trust Quantitative Advisors Inc. to launch their own active quantitative equity management firm, OakBrook Investments LLC, in partnership with AmSouth, which is based in Birmingham, Ala. All three came to Northern when the parent, Northern Trust Corp. of Chicago, bought ANB Investment Management Corp. from a unit of First Chicago NBD Corp.

Neil Wright, who was chief investment officer, says he and his colleagues have called all 16 of their former clients. Some indicated an interest in OakBrook, but none has agreed to move to the new firm, Mr. Wright says.

Meanwhile, AmSouth will assign $50 million from its pension fund for OakBrook to invest in its two portfolios, Mr. Wright says.

market power strategy

OakBrook also will manage two new AmSouth mutual funds, based on the quantitative styles developed by Mr. Wright. AmSouth hopes to launch the funds in two to four months, as soon as OakBrook gets regulatory approval.

Stephen N. Potter, vice president and a director of the Northern Trust unit, says his staff has contacted every client as well. Mr. Potter says Northern Trust executives were “chagrined” by the defections and competition.

“Neil created good product that we own now,” Mr. Potter adds. As a quantitative strategy, “they created a product and approach that is repeatable and not dependable (sic) on any one person to manage.” Northern remains committed to the style, Mr. Potter adds.

Mr. Potter says no clients have decided to leave Northern Trust. “We want to retain all these clients,” Mr. Potter says, noting that more than half have other relationships with the bank.

The OakBrook deal is AmSouth’s third in a year. The others involve Rockhaven Asset Management LLC of Pittsburgh, Pa.,and Sawgrass Asset Management LLC
of Jacksonville, Fla.

Mr. Wright says AmSouth will have a 50% voting share and will be entitled to 30% of the revenue. Michael C. Baker, senior executive vice president and capital management group head at AmSouth, says the bank will own 50% to start. The three principals — the others are Peter Jankovskis, manager-research, and Janna Sampson, manager-active products — own the rest of the firm.

Through the partnerships, Mr. Baker says, AmSouth hopes to tap revenue it otherwise might not be able to and to add to its 401(k) business.

Ms. Sampson says the three former Northern executives feel they now can serve clients who want an active style of management better.

“Northern Trust clearly bought ANB for the indexing,” she says.

Of the money Mr. Wright managed at Northern, $600 million follows a “market power” strategy, which seeks companies that have a competitive edge because of factors like brand name, economies of scale or technology, and $300 million follows a “winner’s curse” strategy that seeks to exploit stock mispricings. It is an enhanced Standard & Poor’s 500 index fund, consisting of about 350 stocks and using game-theory rules in part to screen stocks and decide when to buy them. The winner’s curse notion helps determine the market’s consensus price of a stock and its trading range.

call him irreplaceable

Mr. Potter says Northern has no plans to replace Mr. Wright. John R. Goodwin, chief investment officer-passive management, will oversee the quantitative group in addition to Northern Trust’s $36 billion in index funds.

“We won’t replace Neil and have someone with the title CIO-active management,” Mr. Potter says.

In addition, Northern Trust plans to transfer in the next few weeks its $350 million small-capitalization stock fund, run in a quantitative style, to Mr. Potter’s unit under Mr. Goodwin’s oversight.

Mr. Wright and Mr. Jankovskis say executives from the Atlanta office of Lamalie Amrop International — an executive search firm that has
been working with AmSouth — first approached the three about AmSouth’s interest around the time Northern bought ANB. The deal closed at the end of last year.

OakBrook next plans to hire a marketer and a portfolio manager.

Crain News Service