Acquisition boosts global presence, reduces retail emphasis
“Ideally I would love the business to be balanced retail and institutional, 50-50 would be perfect,” he said. “The next 12 to 18 months will be the reinforcement of that.”
And just last week, the £72.5 billion ($124.3 billion) money manager announced a deal that will bring the London-based CEO a step closer to his targets.
Henderson agreed to purchase Geneva Capital Management Ltd., a small- and midcap U.S. growth equities manager, for $130 million.
Speaking on an analyst call June 30, when the deal was announced, Mr. Formica said the acquisition will “support (the manager's) ability to accelerate our growth plans in the U.S.”
“I have been looking for a long time for the right partner on the ground in the U.S. for U.S. equities,” he said. Henderson, he said, had been “very fussy” about its partner, and was keen to find the right cultural fit.
Adding Geneva personnel will take Henderson's U.S. sales team from three to “at least eight.”“We view this acquisition as an opportunity to accelerate what is already strong growth in the U.S. business,” he said, with more product launches such as global small-cap, “which before (this deal) we couldn't do. It is also a fantastic opportunity to increase our penetration with U.S. institutions. ... It is an area we have been focusing on to expand our institutional footprint.”
The transaction, which is expected to close Oct. 1, adds $6.3 billion in assets to Henderson Global's existing $2 billion of institutional assets under management in the U.S. Before this deal, Henderson had been hired by about 20 U.S. institutional clients, invested across global equities and hedge funds.
Prior to the acquisition, in an interview with P&I, Mr. Formica said: “We have spent the last five years making sure the U.K. business is really strong and solid, and on that basis we can now look to take institutional overseas. We have had presence in the U.S. for the last two decades, and the same in Asia. It is profitable for us, but is subscaleto where we would like to be.”
Compare that $2 billion in institutional AUM with its U.S. retail business, which has about $10 billion in assets and is growing. Most managers, he said, approach institutional first, “since retail infrastructure is harder to put in place.”
Right before Lehman
Mr. Formica's appointment to the helm of Henderson was announced in August 2008, just one month prior to the collapse of Lehman Brothers Holdings Inc. In April 2009, he closed a deal to acquire New Star Asset Management in a £107 million transaction. That agreement bolstered the firm's retail assets and expertise.
Then, in April 2011, he closed a deal to buy Gartmore Group Ltd., adding to long-only and absolute-return capabilities.
“It is an interesting time for Henderson,” Mr. Formica said. “A lot of that is because of the acquisitions we did. Through those acquisitions we consolidated, and it allowed us to reshape the business at a time when market conditions were difficult, client activity was low and regulatory intrusion was high.”
In 2008, the business was 80% institutional and 20% retail. “We revisited that when I took over and sought to redress this, and so we are now 60% retail, 40% institutional. Now we are at an interesting juncture where that will change and institutional should begin to outstrip retail growth in the year ahead.”
Part of those plans to bring up the institutional business was met by selling off a piece of its real estate business to TIAA-CREF, announced in June 2013. “We still own 40%, but TIAA-CREF does all the seed and warehousing requirements.” Mr. Formica said. Henderson is now focused on five areas of money management: European equities, global equities, multiasset, global fixed income and alternatives.
With his aim of rebalancing the AUM to an even split between institutional and retail, Mr. Formica is also looking to hire salespeople and client-service managers.
“The next five years will be about that institutional expansion. The U.S. is at the top of that list,” he said.
Even before the Geneva Capital acquisition, Mr. Formica had been preparing the business to take a more global viewpoint, in hopes of leading to a more globalized set of assets. He added a U.S. credit team last year, and last month announced the appointments of additional investment-grade analysts.
“At Henderson, the product set was regional, but over the last two years we have built that out to be global,” Mr. Formica said. He not only globalized the product set but also the management team, hiring Matthew Beesley as head of global equities in 2012 from Trinity Street Asset Management, and Rob Gambi, who joined earlier this year as chief investment officer from UBS Asset Management “to give a truly global outlook and approach.”
To top it off, Mr. Formica and his executive team introduced a positioning statement — knowledge shared — as an internal and external message. “Internally, we are one team, working together. As one team, you are stronger. And externally, we share with our clients. It is about embracing our clients, becoming more valuable to them in their thinking.”
The manager's eagerness to share knowledge with clients makes good business sense. “We run training and teach-in days with clients and prospective clients. We had one recently with a prospective client, looking at how they could add value to their business.”
He said that client hired Henderson to run an allocation the following day — “they didn't even run an RFP. The presentation we gave had addressed their problems.” Mr. Formica declined to disclose the client and the nature of the allocation.
“We don't want to measure our relationships in transactions, but in years — in decades. That is the genuine difference with our industry — it is a partnership. I want us to feel the pain and share the success of our clients,” he said. n
This article originally appeared in the July 7, 2014 print issue as, "Henderson CEO seeks institutional balance".