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Money Management

OMAM changing gears after surprise departure of CEO

Peter L. Bain’s unexpected resignation caught many analysts off guard.

With OM Asset Management PLC about to be free from its London-based parent Old Mutual PLC, the board of the Boston-based multiboutique manager is seeking new leadership to pursue a more aggressive growth strategy.

Peter L. Bain's resignation as president and CEO of OM Asset Management came as a surprise to many both inside and outside the firm. But OMAM's board and new interim CEO hope this move will help boost the company's growth, and merger and acquisition activity.

On June 29, OMAM announced that effective June 30, Mr. Bain would resign from his roles as president, CEO and director, positions he has held since 2011. James J. Ritchie, OMAM chairman, is serving as executive chairman and interim CEO.

"Peter has successfully accomplished his mission," Mr. Ritchie said in a news release announcing Mr. Bain's departure. "He has delivered on his mandates to reshape the business, develop the leadership team and achieve the company's listing on the New York Stock Exchange, which has enabled Old Mutual to substantially achieve its stated objective of exiting its ownership of the business."

Mr. Bain, in the news release, said: "I am very proud of what we've achieved over the last six years. We restructured the business to focus on affiliates with high growth potential, became a public company, completed a successful new affiliate acquisition and executed the sell-down process for Old Mutual PLC. I am happy to hand over the business in good shape."

Neither executive would comment beyond the news release.

The company is planning to ramp up its investment activity, "especially when it comes to adding new affiliates. We want to grow the company at a more rapid pace, possibly making minority investments where strategic," an OMAM spokesman said in an email.

Old Mutual has been reducing its stake in OMAM since 2014. This year, that process has accelerated so Old Mutual can completely sell off its ownership stake by the end of 2017.

After getting out from under the parent, a source familiar with OMAM who asked not to be named said the board was looking for new blood to help pursue a more aggressive agenda.

The news caught industry observers off guard. After all, Mr. Bain appeared to be looking forward to guiding the company forward after its scheduled parting with Old Mutual PLC.

Unexpected news

"The news is certainly surprising to us given our impression that (Mr.) Bain was fully engaged in the business, and now that Old Mutual PLC has substantially exited their position, was looking forward to moving the company forward," said Robert Lee, a managing director and equity analyst at Keefe, Bruyette & Woods Inc., New York, in a note to investors.

Andrew Disdier, New York-based vice president, equity research at Sandler O'Neill + Partners, also expressed surprise at this "abrupt departure" in a note to investors. "After navigating a separation from the parent, we are surprised to see Mr. Bain depart at such a time in such a sudden manner," he wrote.

But Michael J. Cyprys, an equity analyst at Morgan Stanley (MS), said in a note that OMAM's "board believes the company is at an inflection point and (that) the time is right for a change in leadership … to lead the company through its next phase of growth."

The Morgan Stanley analyst pointed out Mr. Bain "took the company public in October 2014 at $14 per share. Since then, the stock is up about 8.5%, outperforming peers by 18 percentage points, among ​ the best in the industry outside of ( BlackRock (BLK) Inc. (BLK)) and ( Eaton Vance (EV) Corp.)."

Since Mr. Bain was named president and CEO in February 2011, OMAM's assets under management have dropped 4%, to $249.7 billion as of March 31.

Even a senior executive at one of OMAM's affiliates who asked not to be named said this leadership change was "completely out of the blue for everyone. His senior management team had no idea, CEOs of the affiliates had no idea. I got a call from (Mr.) Ritchie the day of (the announcement) letting me know. It was very sudden and very unexpected."

In a May 17 interview, Mr. Bain spoke about plans for the company and its affiliates, from the company working on a name change once it becomes fully independent from Old Mutual to building up its investment capabilities through its affiliates to accelerating M&A activity.

"We should be purely independent by the fall," Mr. Bain told P&I at the time. "With this clarity, we can now accelerate M&A again."

However, an investment banker familiar with the situation who asked not to be named was not particularly surprised about this turn of events, noting that high costs made OMAM's corporate owners believe it was time to shake things up within the firm's leadership.

The investment banker said Mr. Bain's departure was due in part to his "stubborn way of doing deals," which was both "stalling M&A and earnings success" and driving up central costs.

"The board at OM became aware that spending was out of control and the rewards for spending were not there," the investment banker said, asking not to be identified. "And the only way to change this philosophically driven expenditure was to change the person behind it."

Clients unfazed

Clients of OMAM affiliates appear to be unfazed by the news.

Florida State Board of Administration "has no concerns over Mr. Bain's departure," said John Kuczwanski, communications manager, in an email. The board has "a great working relationship with each of the affiliated managers, and (does) not expect material changes going forward."

As of April 30, the Tallahassee-based FSBA — which oversees a total of $189.4 billion in assets, including the $151 billion Florida Retirement System — had $3.8 billion with Heitman LLC, $3.3 billion with Acadian Asset Management and $400 million with Thompson Siegel & Walmsley LLC.

State of Wisconsin Investment Board, Madison, "will continue its ... relationship" with Heitman, which manages $196.4 million for the board, spokeswoman Vicki Hearing said. SWIB oversees $108.4 billion in assets, including the $99.8 billion Wisconsin Retirement System.

Evan England, spokesman for Rhode Island state Treasurer Seth Magaziner, said he doesn't foresee Mr. Bain's departure from OMAM as having any impact on the state's relationship with Heitman. "This doesn't affect management," Mr. England said.

The $7.9 billion Rhode Island Employees' Retirement System, Providence, has roughly $77.5 million in a real estate investment fund managed by Heitman. Mr. Magaziner oversees the Rhode Island State Investment Commission, which manages the assets of the retirement system.

Looking forward, analysts are saying this change in leadership at OMAM could throw a wrench in any short-term M&A activity.

"Uncertainty at the helm likely acts as a headwind to the acquisitive strategy," noted Sandler O'Neill's Mr. Disdier. "We think the firm's M&A strategy will be negatively impacted for the time being."

Mr. Disdier, however, noted the presence of Steve Belgrad — who remains as OMAM's executive vice president and chief financial officer — "mitigates some risk" and "will provide stability and continuity during the CEO transition period."

KBW's Mr. Lee added in his note that he doesn't "expect any change in strategic direction of the company" or "disruption in the day-to-day business of the affiliates."

"That said, the news adds a level of uncertainty and makes it more difficult and … unlikely that OMAM can undertake any meaningful new acquisitions until a new CEO is in place," Mr. Lee noted.

The investment banker with whom P&I spoke was optimistic about this executive change.

"What we have is a company going back to basics," he said. "This could be a company that could compete effectively. I think this is a healthier company today than it was a week ago."