Flight from firm reluctant to change

BEING merely average is no longer good enough. That is the sobering lesson Henderson Administration has had to absorb at its modern headquarters in the Broadgate Centre near London's Liverpool Street station.

In the past three years since Ian Buckley came from Sun Alliance to be Henderson's investment director, the group's pension fund management has settled down to a median performance, half-way down the league table. Previously it had fluctuated wildly up and down.

But that average performance is not enough to win business, and has led to the loss of some 20 accounts in the past year, out of a total of 160.

That is what forced Henderson, after much heart-searching, to issue a cathartic trading statement warning that the loss of pension fund business would mean a fall in profits this year. This has in turn sparked the inevitable speculation that the group could be vulnerable to a takeover bid.

As with other quoted fund managers, Henderson's independence has been protected by the hefty chunk of its shares held by the funds it manages. By 1988, the aggregate percentage held in-house had fallen from 75 per cent to 32 per cent, which was then reckoned as low as was safe, without leaving Henderson vulnerable to a takeover bid. But now the figure is little more than 20 per cent, held by funds and trusts that might feel obliged to accept a serious offer - as the Wellcome Trust has done with regard to the Glaxo bid for Wellcome.

Sources close to Henderson point out that the outside world has given little credit to the company for the internal changes it has made in recent years, including recruiting experienced managers from other parts of the industry. But although the profit for the year to March may be higher than 1993's £14.6m, it will probably be lower than for any of the three years before that.

It is only a short walk but conceptually a different age from Henderson's origins at Austin Friars, in the shadow of the London Stock Exchange. The group was born just less than 61 years ago, as a way of disentangling the financial affairs of Sir Alexander Henderson, the first Lord Faringdon, who died on 17 March 1934.

Alexander Henderson's father had been a proof reader at a print shop in Soho. Alexander moved east to become a stockbroker's clerk and made a killing out of the railway booms in Britain, Spain and South America. Investment trusts that had been set up to handle the fortunes of individual family members, such as Witan, Greenfriar and Lowland, formed the basis of Henderson's early business.

But, for the next half century, Henderson owed much of its elevated position in the City to a deal struck just two years before its own formation. That was when the family stockbroking firm, Greenwood & Company, was sold to Cazenove, which became the City's most powerful broker in the post- war era.

Harry Henderson and the third Lord Faringdon are still partners of Cazenove, Lord Faringdon is a director of Henderson Administration, and the broking firm has normally had a representative on Henderson's investment trust boards. James Henderson, 33, Lord Faringdon's son, is a director of Lowland Investment Trust and Henderson Financial Management.

Henderson duly diversified from investment trust management to unit trusts and pension funds, enjoying a flow of business from Cazenove-related clients. Its downfall dates from the stock market crash of 1987, because its funds were so heavily committed to shares rather than bonds.

The takeover of Touche Remnant in 1993 was intended to inject sharper investment and corporate management, but the departure a year later of Paul Manduca, TR's chief executive, signalled that the old guard was reluctant to relinquish control. That impression has only been strengthened by the time it has taken to replace Mr Manduca, who left to launch Threadneedle Asset Management for BAT Industries, complaining that Henderson would not confirm him as successor to Jeremy Edwards, the chief executive.