Out Of The Woods
December 1 1996 by Jonathan Burton
For most of his nearly 30 years in the investment business, Stephen B. Timbers concerned himself with identifying and buying growth stocks at what he considers a reasonable price. Now he is committed to one of the riskier bets of his long career: revamping the stale Kemper family of mutual funds into a fresh contender. The Kemper funds’ chief executive knows that without a powerful makeover, Kemper’s asset base and market share will suffer. And change must come soon; this rapidly consolidating business is becoming a place where only the strong or the specialized survive.
In investment parlance, Kemper is a value play-a known brand with a venerable history that in recent years has fallen out of favor. Kemper funds have been in disarray since 1994 after two abortive takeover attempts of its parent, Kemper Corp., first by General Electric and then by insurer Conseco. During the turbulence, Kemper lost talented fund managers and staff, and the uncertainty crippled recruiting efforts. Finally, in January 1996, Swiss insurance giant Zurich Insurance Group bought Kemper’s financial-services business, since renamed Zurich Kemper Investments.
Just closing this difficult chapter has brought a measure of stability to Kemper. A new parent gives the
Only an improved track record will help Kemper regain the confidence of stockbrokers and financial planners who recommend funds to their clients. But Timbers is one of those rare investment professionals who has lived through a bear market, a sobering experience that offers some cushion against the tough times at Kemper. He understands that markets eventually recognize good value in a beaten security and bid up its price. This is his goal: to fashion Kemper into one of the growth vehicles he knows so well.
“You have to have excellent investment performance,” says Timbers, 52, a soft-spoken native of
Timbers has identified four additional building blocks to Kemper’s success: popular brand recognition; a broad product line; effective distribution; and excellent support services, such as telephone help and readable monthly statements. “If you look at who is winning in the business, you’ll see they are doing those five things well.” He rattles off examples: Fidelity, Vanguard, Putnam,
The fund industry repeatedly claims that past performance is no guarantee of future returns. But past performance, in fact, is both the top and the bottom line for Kemper and every other fund company. Equity funds that sell today, for better or worse, have received three-year rankings of four or five stars from fund-rating service Morningstar Inc. Without this endorsement, a fund is not likely to see a cascade of cash inflows; it may even see net redemption of assets. Since a fund company’s income is linked to a percentage of assets under management, the more it controls the more it makes. So fund families clamor for super funds and star managers.
Kemper has three five-star equity funds, and nine five-star fixed-income funds. Timbers claims that performance has improved in recent years, a feat not yet reflected in Morningstar’s data. In an effort to spice up Kemper’s equity menu, he is acquiring investment management companies and building from within. Deciding that Kemper needed a value player to complement its growth-stock orientation, he snared New Jersey-based Dreman Value Advisors and the talents of contrarian fund manager David Dreman, who has a reputation for venturing into market situations where others fear to tread. It proved a wise choice that won new investors.
“They didn’t have a value component, and they purchased our firm,” says Dreman, whose disciplined approach to underappreciated stocks has generated above-market long-term returns.
“Steve’s a good executive, astute in knowing talents of various people and taking an organization and broadening it.”
Toward that end, Timbers plans to launch an aggressive growth fund and put greater emphasis on international equities. There is also a never-ending quest for talent. “You find people with good reputations and great records and bring them in,” he says. “They not only help you in terms of running the fund, they help you in terms of sales.” Timbers also intends to make Kemper a familiar name in retail funds from
These are challenging tasks, to be sure. But Timbers has already experienced personal challenge of an excruciating nature.
While he was grappling with the
Day-to-day management is easy by comparison. Timbers is a consensus-builder with close contact to the firm’s fund managers and support staff. Having an established franchise to market also helps, although he is saddled with a stable of funds that carry up-front fees, or loads, when the trend favors no front- or back-end charges. Timbers contemplates relaxing Kemper’s load structure, but won’t divulge details except to say, “You have to wonder whether the industry is going to migrate so there’s little distinction between loads and no-loads.”
Though the jury is still out on Kemper, there is apparently a good deal of confidence in Timbers. “I wouldn’t bet against him,” contends Don Phillips, Morningstar’s president. “He’s a smart man in a good industry who has some powerful things going for him, not the least of which is a deep-pocketed parent and a good brand name. I think you’ll see some pretty exciting things out of Kemper funds in the next several years. I think he’ll get the ship turned around.”
STEPHEN B . TIMBERS
Chairman and Chief Executive
Education: B.A., Yale; M.B.A.,
Family: Married; teenage son, Alexander; lost two sons, Christopher, 3, and Brendan, 2, to genetic disease, Lesch-Nyhan Syndrome.
Best investment decision: Buying fast-growing technology company Cisco Systems.
Important investment lessons:
1)”Trees don’t grow to the sky. There are very few Cisco Systems out there.”
2)”Being contrarian just for the sake of it is probably a bad strategy, but leaning against the wind is probably a good strategy.”
Most admired investors: Growth-stock icon Claude Rosenberg of Rosenberg Capital Management, who established high ethical standards. And economist and author Peter Bernstein, who translates academic investment research and theories for the lay reader. Predictions: Investors will conclude that inflation is under control, and
Interests: Golf-his handicap is 12-and reading history and fiction.