TheChek News Flow

Battle between CEO and investment chief has alarmed clients and sparked departures

A power struggle has broken out between Guggenheim Partners’ two most prominent executives, sapping morale, alarming clients and contributing to the departure of several top managers, according to current and former employees of the $240bn asset manager and investment bank. 

The battle pitting founder Mark Walter against chief investment officer Scott Minerd has erupted at an inopportune time for the secretive but historically successful Wall Street firm, coming after it has seen a rare drop in asset management fees, according to documents seen by the Financial Times. 

At least 10 senior professionals have left Guggenheim in the past 15 months, including co-head of corporate credit Jeff Abrams, macro strategist Anne Mathias and chief financial officer Brad Olson. Amid the upheaval, the firm recently added a new president of investment management and a new head of strategy and planning. 

Guggenheim saw its total return to its owners drop by four per cent last year, while its investment management division reported a five per cent year-on-year drop in revenue to $765m, according to a June 30 memo sent to investors — an aberration at a group whose assets under management have grown from just $35bn 10 years ago.

According to employees and clients, the tensions between Mr Walter, Guggenheim’s chief executive and a co-owner of the Los Angeles Dodgers baseball team, and Mr Minerd, who has been credited with turning a small investment manager into a Wall Street powerhouse, were exacerbated by recent changes in the firm’s institutional distribution group, which acts as intermediary between Guggenheim’s money managers and investors such as pension funds, insurers and investment consultants.

Those clients include Midland National Life Insurance and the pension funds for the New York City Police and state employees in South Carolina.

Mr Minerd has been frustrated by changes implemented by Alexandra Court, an ally of Mr Walter’s, since she was promoted in April 2016 to be global head of institutional distribution, according to eight current and former Guggenheim employees. 

Mr Minerd “is frustrated with the choices and decisions of certain executives and their impact on the direction, culture and soul of the firm as it has grown,” according to a person close to him, who added that Mr Minerd would not provide comment to the FT.

Mr Walter, an Iowa native, co-founded privately held Guggenheim in 1999, combining his small Chicago investment firm with a family office that managed a portion of the Guggenheim fortune that traces back to 19th century lead and silver mines. Mr Minerd, a competitive bodybuilder who joined Guggenheim at the start, is the face of the business, appearing frequently on television and in print to discuss global economic and investing themes.

Within days of Ms Court’s appointment last year, 22 members of the US distribution team she took over were fired, saving about $10m in annual costs but angering several of Mr Minerd’s investment colleagues. The firm also changed the structure of the distribution team, sharply reducing the number of employees handling calls and requests from institutional clients. 

Guggenheim’s money managers were barred from communicating directly with clients unless interactions were arranged through Ms Court’s sales team, according to a January 2017 memorandum sent to the investment team by Mr Walter and Andrew Rosenfield, a managing partner. The memo, seen by the FT, cited “a fundamental change” when Ms Court was appointed.

“Only Distribution has the authority to schedule meetings, to prospect and to manage client services,” the memo read. “Consistent with this, [portfolio managers] were instructed that they were, under no circumstances, themselves to set up prospecting meetings, to market funds or services, to schedule client meetings or to deal directly with clients at all unless authorised, in advance, by Distribution to do so.”

Although a spokesman for Guggenheim said Ms Court was selected by a group of company executives including Mr Minerd, the people close to Mr Minerd said she was selected only after two other internal candidates he preferred were passed over.

Mr Minerd and his team believe Ms Court was emboldened to implement changes due to a close relationship she had with Mr Walter, according to 11 current and former employees at Guggenheim. A spokesman for Guggenheim disputed this, saying she did not report directly or indirectly to Mr Walter and her restructuring was part of a strategy approved by the division’s entire leadership.

Mr Walter’s relationship with Ms Court was disclosed to the members of Guggenheim’s board, according to three executives.

The Guggenheim spokesman said: “There is no non-business relationship, but if there were it was fully and promptly disclosed to the appropriate parties at Guggenheim in accordance with established processes and procedures, which were then fully implemented, to avoid improper influence or favour.”

Mr Minerd’s allies said the investment chief is not interested in replacing Mr Walter as chief executive, but the upheaval inside the firm was leading him to question Mr Walter’s position. 

The Guggenheim spokesman denied any split between Mr Walter and Mr Minerd, insisting recent tensions were “nothing more than the usual internal debate.” In an email the spokesman added: “If people perceive the interaction between the two of them as a power struggle, we believe that is an inaccurate portrayal.”

Ms Court has strongly defended her role at the firm, citing her prior record as London-based head of distribution in Europe where she successfully ran a much smaller team than Guggenheim had in the US, a streamlined model that her American team has now also pursued. 

“The Institutional Distribution team services and maintains in excess of 800 clients and client retention has been close to (if not) 100 per cent since my appointment,” Ms Court said in an email. 

Assets under management have grown by more than $20bn since her appointment, according to the company, and while Guggenheim reported a decline in revenues in its June memo to investors, it also said performance in the first half of 2017 led it to expect a return to growth in the full year.

Guggenheim employees own about 45 per cent of the company, according to its website. Sammons Enterprises, Guggenheim’s largest outside shareholder and a big investor in its funds, declined to comment.

However, Mr Minerd and several other senior Guggenheim portfolio managers believe the cuts to Ms Court’s US team are hampering the firm’s ability to raise new money from institutional investors, according to more than 10 current and former employees. 

“We didn’t have an outlet to distribute investment capabilities,” said one current Guggenheim fund manager, pointing to the inability of portfolio managers to contact clients directly. “Clients have been negatively impacted.”

Two investment consultants, who recommend clients to Guggenheim, said they had seen a marked drop-off in responsiveness from the firm after Ms Court’s promotion and the subsequent upheaval. 

“The turnover [of staff] is causing concerns about what else is going on over there. We are increasing our scepticism,” said one consultant, who asked not to be named because was not authorised to speak publicly about the matter. 

Another said: “We used to have a dedicated person on our account before Alex Court joined. After that, there was only a single person to cover all their accounts. We had to find other people at Guggenheim outside [her] group to handle our requests.”

Ms Court has insisted that two members of her team are allocated to each account, ensuring timely responsiveness.

Mr Minerd’s team is unhappy with the new role for Ms Court’s distribution team, in part, because they believe the chief investment strategist is responsible for the group’s strong performance and should be treated as one of the leading figures on Wall Street.

“Bill Gross and Jeff Gundlach are Scott’s [Minerd] peers but those guys are actually running their firms. Scott’s frustration is not knowing where the firm is going,” another person close to Mr Minerd said.

Some Guggenheim staff members have also raised concerns about Ms Court’s lack of US securities licences. At most of Guggenheim’s direct competitors — such as Lazard, Voya, Barings, TWC and Janus Capital — the heads of distribution have a series 7 or series 24 certification issued by Wall Street’s self-regulatory body, Finra. These licenses, which are obtained by passing exams, are considered to be standard for professionals marketing financial products and supervising other sales executives, respectively.

The Guggenheim spokesman, Michael Sitrick, said the firm had sought a waiver from the licensing requirement from Finra when Ms Court moved from the UK, where she had similar Financial Conduct Authority licenses, but Finra denied the request in the middle of last year. Mr Sitrick added that at all times appropriately licensed professionals have overseen all of the firm’s distribution staff.

In June, Guggenheim notified staff that Ms Court had taken a summer sabbatical and would return on September 1, according to an internal memorandum seen by the FT. Guggenheim’s spokesman said Ms Court would have licenses when she returns.

Consultants who work with Guggenheim say they hope the firm will sort out its infighting. “We think the investment team at Guggenheim has a truly differentiated product. We think highly of them. We hope there is chance that things improve over there now,” one said.