Minneapolis, Minn. — American Express Financial Advisors, one of the biggest employers in downtown Minneapolis, has roots that date back to 1894. The company grew to be a giant, and helped spawn the local industry as employees left to start their own firms in the Twin Cities.
"It's definitely historically been a center for mutual funds," says Joe Barsky, a former American Express executive now helping students learn portfolio management at the University of Minnesota's Carlson School of Management.
"And I think American Express, when it was IDS, was one of the original innovators of mutual funds."
In the 1960s and early '70s the company, then known as Investors Diversified Services, was the biggest mutual fund firm in the country. In the mid-'70s, with $5 billion in assets under management, Business Week magazine labelled IDS the leviathan of the mutual fund industry. University of St. Thomas finance professor Mary Daugherty, who helped manage money at another Twin Cities firm, says the big fund company used to be a magnet.
"When there's so much money concentrated in one shop, that gets attention of any company that wants their stock followed," says Daugherty. "Frequently they'd come into town to see American Express. But heck, they're already here, so they'll meet with the smaller players. That's not to say US Bank Wells Fargo -- these are big entities as well -- but American Express was the largest and certainly was the draw."
Last year, American Express Financial Advisors announced it would shift responsibility for $12 billion in assets to newly hired managers in Boston. Last month, the company laid off several money managers and analysts in Minneapolis. Spokesman David Kanihan says American Express is on a major push to improve investment performance, and it can be hard to get managers to move here.
"Some portfolio management responsibilities are moving out of Minneapolis to some of our other investment locations, in Boston, San Diego, for example," says Kanihan. "But I think what Minneapolis is gaining here is a clear focus and a clear purpose."
Kanihan says Minneapolis remains home for fixed income portfolios and certain stock investments. He says the major changes are largely complete, and are not related to regulatory investigations the company disclosed last month. Though many functions remain in the Twin Cities, less than half of the company's nearly $300 billion in assets under management remain managed in Minneapolis.
Some portfolio management responsibilities are moving out of Minneapolis to some of our other investment locations, in Boston, San Diego, for example. But I think what Minneapolis is gaining here is a clear focus and a clear purpose.
Other mutual fund and insurance firms have moved money management responsibilities out of the Twin Cities. At Alliance Capital Management, changing responsibilities -- not the mutual fund scandal -- transferred the leadership of a team responsible for tens of billions of dollars to Chicago.
The merger that created Thrivent Financial for Lutherans resulted in fewer money management jobs in Minneapolis, though most assets are run from Minneapolis.
Advantus Capital Management of St. Paul cut about 30 jobs and transferred management of more than $2 billion in assets to a Kansas City firm. The changes don't get a lot of publicity, and they involve relatively few jobs, but they are having an effect.
Professor Tim Nantell oversees the Carlson Funds Enterprise at the University of Minnesota's Carlson School of Management. The school has two student-run investment funds established as a training ground for the Twin Cities money management industry.
"From the community's point of view, the whole point of this project that we had was that we were going to be providing talent for them that they hadn't historically been able to get locally, and that they have a hard time, relatively, attracting from around the country," says Nantell. "And the demand from them just isn't what we anticipated it was going to be when we started."
Nantell says the result is fewer jobs and internships available to students.
State employment figures indicate Minnesota had nearly 1,400 portfolio management-related jobs at the start of 2000. The number grew about 10 percent over the next two years, but more than half that gain was gone by the early part of this year.
Other statistics present a mixed picture. Membership in the Twin Cities professional association for investment managers has steadily risen. The number of members working for mutual funds or investment companies has grown by nearly half since the late 1990s.
Still, the local chapter has grown slower than related organizations in other major U.S. cities. The Twin Cities Society of Securities Analysts ranking has fallen from eighth to ninth in size of membership.
Society President Jason Matz confirms some big firms have moved management of assets elsewhere in search of talent.
"But you also see a healthy contingent of people breaking off from larger asset management firms to form their own boutique firms," says Matz. "So Minneapolis actually has a really healthy contingent of smaller asset management firms -- people that have been in the industry here for several years and decided to go out on their own. We've also got a large contingent of hedge funds."
Hedge funds are investment vehicles which typically cater to wealthy clients and are largely unregulated. According to Texas Hemmaplardh of the Minneapolis investment consulting firm Jeffrey Slocum & Associates, there are 40 to 50 hedge funds in the Twin Cities.
"We're seeing the number of firms increase, which means that the number of service providers and auxiliary support staff to them will have to increase," says Hemmaplardh. "And that helps draw in talent from other parts of the country, and obviously raises the profile of the investment management community in the Twin Cities."
Hemmaplardh says those are positive developments. Joe Barsky of the University of Minnesota says unless those smaller firms grow enough to absorb the talent big firms are shedding, the Twin Cities is still losing ground.
"The game may be moving to another set of players who will create jobs and will be successful," says Barsky. "But you're starting with very big entities who can lose a lot, and very small entites that take a while to grow up to be that size."
But there are signs the job market in the money management industry is coming back to life. The Standard and Poors 500 Index is up more than 20 percent over the past year, and Mary Daugherty of the University of St. Thomas says her students are finding easier sledding.
"My undergraduates that are going to be graduating this December have had pretty good luck. The market's opening up," says Daugherty. "There's been jobs at the entry level, where they're willing to pay, whereas before I'd get calls, 'Who can I get on the cheap?' Now, 'Who can we get and what do we have to pay them to get them in the door?'"
Daugherty stresses that the Twin Cities money management community remains dynamic even as its complexion changes. But others worry that there are few signs on the horizon that indicating the Twin Cities will regain whatever scale it has lost.