Swiss-owned fund manager, UBS, has paid dearly for the loss of high profile manager, Paul Fiani, and some of his workmates at its flagship Australian Share Fund, over the last few months.
The loss of Fiani and other managers in recent months has been behind Standard & Poor's decisionto halve the rating of UBS's key Australian Share Fund.
Funds management is claimed to be a major business world-wide for the bank, so the downgrade and comments byS&P will hit hard.
Fiani and Balanced Equity's Andrew Sisson are known as 'the men who sank the Qantas bid", a reference to their strong opposition which led to the $11.1 billion dollar Macquarie Bank-driven bid for the airline failing in early May.
Fiani left UBS shortly after amid stories that he was 'paying' for his opposition. UBS's investment banking arm had been advising Qantas and stood to make an estimated $100 million in fees.
Fiani and one of his other colleagues, Shawn Burns, have set up their own funds management business.
Yesterday Standard & Poor's Fund Services announced that it has downgraded the UBS Australian Share Fund from four to two stars.
"S&P recommends that advisers seek an alternative manager when looking for a "core" Australian-equities exposure," the credit and fund rating agency said in the announcement.
That's a devastating blow to UBS, which has reportedly lost billions of dollars from the fund in the wake of the Fiani departure.
So too was the reference in the statement to 'deeper' problems' at UBS 'as a whole'.
The comments will concern fund trustees and other advisers.
"S&P understands that there is fierce competition in the Australian fund-management industry at the moment for senior investment professionals, but the staff turnover at UBS suggests deeper problems for the organisation as a whole.
"In the past six months, the UBS Australian-equities team has lost five of its most senior team members:
Paul Fiani (head of equities), Shawn Burns (portfolio manager), John Moran (head of research), Marcus Truman (investment analyst), and Mark Buizen (portfolio manager, emerging companies).
"This follows a similar scenario in early 2006, when the head of UBS's listed-property team, John Snowden, and two of his team members, resigned and moved to a competitor.
"Staff retention is one of the most crucial aspects for a fund-management organisation. UBS has demonstrated that it is not capable of retaining key people, and this puts at risk the ongoing ability of the
Australian equity fund to deliver upon its objectives," S&P fund analyst Marcus Hanel said.
"S&P recognises the robustness of the investment process and the commitment to find suitable replacements, as demonstrated through the appointment of Simon Shields as the new head of Australian equities, but this fails to outweigh the negative effects of recent events," Mr. Hanel added.
UBS is troubled elsewhere. The US subprime mortgage mess and subsequent problems in some financial derivatives linked to the loans, claimed the UBS CEO 10 days ago.
Peter Wuffli was sacked as CEO and replaced by his deputy.
UBS has suffered three consecutive quarters of poor returns and underperformance in its money management business, especially in the US where it has had the added problem of losses in a hedge fund put at well over $US400 million.
Those losses were incurred in the subprime mortgages.
Marcel Rohner, the deputy CEO, will succeed Wuffli and Marcel Ospel has agreed to remain as chairman for at least another three years after the board rejected his proposal to have Wuffli replace him.
The UBS board removed Wuffli after earnings fell 13 per cent last year from a record $US 11.5 billion in 2005 and the company shut its Dillon Read Capital Management LLC hedge fund after incurring huge, and surprising losses.
UBS is the world's biggest money manager for the wealthy, so the situation in the Australian fund and Stand and Poor's comments won't go unnoticed in Zurich where the gnomes all line-up at UBS.
Fiani has registered the name Integrity Investment Management, which says a lot about his experiences at UBS where he came under enormous pressure during the Qantas takeover.
He and Sisson believed the $5.45 a share offer devalued Qantas and since the bid failed in early May because a hedge fund couldn't get its acceptances right, the QAN share price has traded well above that level.
Fiani's opposition (he was never allowed to go public like Andrew Sisson did) was justified when it was revealed that APA consortium – made up of Macquarie Bank, Allco Equity Partners, Allco Finance, Onex and TPG – was planning to take $4 billion out of Qantas through dividends and extra payments to immediately re-coup part of their costs.
