BOSTON - Quadra Capital Partners L.P. has changed from a potential buyer of money managers to a safe haven for firms trying to fight them off.
The firm set out to become a money management holding company, but it changed into an operating company for small firms that want to move up to the next level without giving up their independence, said Eileen Delasandro, chief executive officer.
The focus changed as merger and acquisition activity heated up and money management acquisitions became more expensive and complicated, she said.
Ms. Delasandro, a former chief operating officer of Nicholas-Applegate, noted many firms that have good money management skills lack the resources to start new products - including mutual funds and defined contribution products - to compete. Quadra plans to play the role of chief operating officer and give them the means to compete without having to sell to a larger entity, she said.
The firm will act as a marketing representative to bring in new assets but also will handle administrative functions and advise affiliates on operations, product development and succession planning, she said.
To avoid having a contractor-client relationship only, Quadra affiliates will buy a piece of the company, which eventually will be one-third owned by its affiliates.
The first affiliate signed - Anhalt-O'Connell Inc., Los Angeles - bought a 9% stake, but Ms. Delasandro said Quadra expects affiliates to own 2% to 6% stakes. Quadra wanted its relationships to have more permanence, rather than being a "hired gun" as a third-party marketer under contract, she said.
Under the current structure, Quadra gets a revenue-based fee for its services while the affiliates get a portion of Quadra's profits as shareholders. The arrangement can help managers whose asset classes are out of favor because they would benefit from the revenue stream of the other managers, said Donald A. Levi, Quadra's chief operating officer.
Quadra is handling client service and marketing for Anhalt/O'Connell, which manages $800 million in fixed income, but has plans to offer services to help affiliates enter the defined contribution and mutual fund markets. The firm also could put together joint ventures between its affiliates to create products that combine their capabilities, said Ms. Delasandro.
In the defined contribution market, Quadra will help put together the non-investment plan functions for its affiliates, a task that would overwhelm a small manager, said Mr. Levi. It will provide 401(k) record keeping and education by hiring outside vendors to handle the functions but eventually might develop those capabilities in-house, he said.
The firm also is preparing to register a family of mutual funds that will be subadvised by the affiliates, said Mr. Levi. Plans call for a six-fund Quadra family, including domestic and international equity and fixed income, which will be rolled out as affiliates are signed.
The mutual funds are a good example of the economies of scale Quadra can provide, said Mr. Levi. The firm can handle the shareholder servicing and administrative functions that would be too expensive for a small firm to do on its own, he noted.
Quadra's idea is to create a portfolio of managers with complementary styles, with approximately eight different firms, said Ms. Delasandro. But that number would be driven by the diversity of styles among the affiliates, she said. Having signed Anhalt/O'Connell, Quadra's management is talking to several equity managers and is also interested in a global bond manager.
Quadra is looking for managers who are established and financially stable, but have reached a plateau in assets and need an operational platform to grow beyond their tier, said Ms. Delasandro. The targets are small to midsized firms; no startups will be considered. "Too much missionary work needs to be done in the first three years," she added.
The ideal candidate is a manager who loves the process of investing and is good at it, said Ms., Delasandro, but looks upon marketing and sales "like taking out the trash - hates it."
Quadra's staff is rounded out by Senior Vice President Carol Kolakowski, a former marketer at Bankers Trust Co., and Vice President Paul Olschwanger, former director of institutional marketing for Providian Capital Management.