Boosting bottom line, helping affiliates gain inflows are new priorities
At least three of the 18 Old Mutual Asset Management affiliates Peter Bain inherited when he became president and CEO in February appear to be on the way out, promising to make OMAM a more select — and potentially more profitable — multiboutique company.
In a recent interview, Mr. Bain said helping OMAM's affiliates garner net inflows again and boosting the group's operating margins are top goals now.
By contrast, an initial public offering of OMAM's shares, which parent company Old Mutual PLC previously suggested, is not urgent, Mr. Bain said. Having the “currency” that a listed stock would provide is all well and good, but unless that stock is trading at the kind of price-earnings ratio strong businesses command, using it would be “too dilutive,” he said. “What really matters is getting our business performing at a level we want to get it to.”
Investment bankers, consultants to money managers and other observers say Mr. Bain appears to be making tough choices that could hasten the day when Old Mutual Asset Management can turn to playing offense, rather than defense.
On Sept. 6, the company announced an agreement under which the management of affiliate Lincluden Investment Management would buy back OMAM's 100% stake in the Oakville, Ontario-based equity manager with $3.2 billion in assets.
On the block
Also during September, industry sources said Dwight Asset Management Co. LLC has been put on the block, with bids due by mid-October. Burlington, Vt.-based Dwight is a stable value manager whose $45 billion book of business accounted for almost 20% of OMAM's $260 billion in assets under management as of June 30. In the interview, Mr. Bain declined to comment.
And on Oct. 4, the holding company pulled the plug on OMCAP Investors — a U.S. retail distribution affiliate Mr. Bain's predecessors had struggled to build as a means of adding value for the firm's institutionally focused money managers.
OMAM sold roughly $2 billion in OMCAP mutual fund assets subadvised by OMAM affiliates to Touchstone Investments.
On the same day, OMAM announced the hiring of Julian Ide as CEO of Old Mutual Asset Managers (UK) Ltd., and — more importantly — to the new position as the holding company's head of global distribution. Mr. Ide had been head of institutional business at BBVA Asset Management in London.
In the interview, Mr. Bain said OMAM's two Oct. 4 announcements dovetailed nicely with his decision to shift the focus of the holding company's efforts to add value for its affiliates from the U.S. retail market to a global distribution effort.
Touchstone's core business is building subadvised mutual funds, and “for us to partner and participate with them as subadvisers is more consistent with our group's focus on managing institutional-driven, active investment strategies,” Mr. Bain said.
Meanwhile, with Mr. Ide on board, Mr. Bain said his plans to leverage the parent company's global reach to help OMAM's affiliates pick up more institutional and retail business overseas can kick into high gear.
“If we're successful bringing non-U.S. institutional and retail assets to our affiliates, (that's) something we and they would both value highly,” Mr. Bain noted. Meanwhile, with its insurance company parent offering a range of savings products, it's “intelligent for us to explore” opportunities to add greater value for Old Mutual clients, he added.
OMAM's biggest affiliates — Dallas-based Barrow, Hanley, Mewhinney & Strauss LLC, with $63 billion in AUM as of June 30; Boston-based Acadian Asset Management LLC, with $50 billion; and London-based Rogge Global Partners LLC, with $45 billion — are already well-positioned to serve institutional investors at home and abroad.
Some observers give Mr. Bain fairly high marks for his first round of decisions. But many predict the task of turning the collection of affiliates he inherited — many of them small boutiques with less than $5 billion in AUM — into a vibrant, growing business should prove daunting.
Mr. Bain didn't respond directly to questions about the reasons behind the Lincluden MBO, or whether his review of OMAM's existing affiliate lineup is complete or ongoing. Spokesman Douglas Hesney noted that the “quiet period” in the lead up to parent company Old Mutual PLC's third-quarter earnings announcement, slated for Nov. 3, limits what executives can say for now.
One consultant to money management firms, who declined to be named, said Mr. Bain is making “all the right moves,” but the path ahead won't be easy, with a parent company that appears to be looking to cash out rather than put more capital into its asset management business.
Opinion among executives of OMAM's affiliates appears to be fairly favorable.
An executive with one equity affiliate, who declined to be named, said he sees Mr. Bain's plans to drum up more business for OMAM's affiliates managing assets on behalf of the parent company's insurance clients as the least-promising plank of the CEO's new growth strategy.
Others, however, see progress.
Olaf Rogge, CEO and chairman of Rogge Global Partners, said the course Mr. Bain is steering now “makes much more sense” than those of the past decade. For example, he cited the now-abandoned strategy of building a U.S. retail business as an exercise in “throwing a lot of money out the window.”
Lawrence E. Gibson, chairman and co-CEO of Richmond, Va.-based Thompson, Siegel & Walmsley LLC, said having OMAM working on behalf of smaller affiliates to bolster their institutional business, while leaving the firm's investment professionals free to focus on delivering alpha, is a welcome arrangement. The firm managed $8 billion in equity assets as of June 30.
Harindra de Silva, president of Los Angeles-based quantitative equity boutique Analytic Investors LLC, noted that the Old Mutual PLC connection has opened doors to a number of pension funds overseas. Of course, it's up to Analytic to close the deal, but such introductions are still a “huge benefit,” he noted.
Meanwhile, Barrow Hanley and Rogge have been enjoying net inflows in recent years, and Mr. Rogge said his firm now has more than $48 billion in AUM, up from $45 billion at the end of June. Acadian, after suffering through a miserable period for quantitative managers during the global financial crisis, could be poised to garner net inflows again as demand for the firm's managed volatility strategies has increased.
And selling Dwight Asset Management, whose stable value fees are close to 15 basis points, wouldn't greatly boost Mr. Bain's war chest, but it could be an effective way to ratchet up the group's margins, observers say.
In a telephone interview, John Siciliano, a senior adviser to Stamford, Conn.-based Greenwich Associates' investment management practice, said while he has no information about a potential Dwight sale, such a move could be “a very prescient and forward-thinking action to take” to position the broader OMAM group for growth.