LONDON -- Liechtenstein Global Trust is expected soon to have a short list of potential buyers for its asset management division.
LGT wants money to seize immediate opportunities in private banking, LGT's core business and an industry that is changing rapidly through consolidation and acquisition. Profit margins for private banking are three to four times higher than those of institutional money management, according to some European analysts.
LGT Asset Management had $61.6 billion in total assets under management worldwide as of Sept. 30, down from $65 billion in total assets reported at June 30 and $62.4 billion at the end of 1996.
The division comprises three entities: Chancellor LGT Asset Management in New York; GT Global in San Francisco and London; and LGT Asset Management Division, London. About $43 billion of the total is institutional money; approximately 71% of the total assets is money from U.S. investors.
A good buy
A company with no asset management capability, and especially a firm with no institutional assets, would benefit from buying LGT's division, said Bruce McEver, president at Berkshire Capital Corp., a New York investment banking firm. "A $65 billion piece like this isn't available every day," Mr. McEver said.
A buyer might pay between $850 million and $1.4 billion for the division, less than 2% of assets under management, according to industry analysts. Two problems could discount the purchase price: Chancellor recently lost money because of staff departures and performance problems in large-capitalization growth equity; and LGT has no retail distribution arm, so it has to sell mutual funds through brokers.
Chancellor managed $34.4 billion in assets Sept. 30, of which about $24 billion was tax exempt. It is a drop from the $37.2 billion in assets Chancellor managed at the end of 1996, and indicates only shallow growth since the end of 1995, when an independent Chancellor Capital Management Inc. had $31.1 billion.
Rocky union notwithstanding
Executives with the LGT Asset Management don't believe sale of the division has anything to do with the rocky 1-year-old marriage between LGT and Chancellor.
"So many people are choosing to talk in terms of combinations, but the people in LGT and Chancellor are on track," said Paul Loach, chief executive officer of LGT's Asset Management in London.
LGT purchased Chancellor because of its strength in active domestic U.S. equities and bonds and its expertise in institutional assets. GT Global Inc. provides LGT with the international mutual fund side of the investment business. LGT executives say the global package has been drawn together.
European companies are expected to display an interest, but the LGT announcement might have come too late to catch the eye of Union Bank of Switzerland, which has been actively seeking a U.S. money manager. UBS is believed to be negotiating a merger with Swiss Bank Corp., although no formal announcements had been made as of late last week. ABN AMRO N.V., which might have had an interest in the past, now has quit looking for a U.S. money manager and instead has reorganized its entities (See story on page 46).
However, a good candidate for the short list might be an insurance company in need of a strong asset management footprint, observers say. CS Holdings AG (Credit Suisse) might be interested, as might ING Group N.V., although ING may still be digesting its acquisition of Baring Asset Management.
As dominant players get into position now for global competition, "this is the right time to seek a parent to help us move to the next phase," Mr. Loach said. In addition, acquiring firms have demonstrated they are willing to pay top dollar for any kind of partner that can provide more strategic muscle power. The multibillion-dollar price, more than 3% of assets, that Merrill Lynch & Co. Inc. has agreed to pay for Mercury Asset Management Group P.L.C. is evidence of that, Mr. Loach said.
However, acquiring independent firms and fitting them into a total global business package is a tricky business, said Fernand Schoppig, president of FS Associates, West Orange, N.J. FS is a financial and investment consulting firm specializing in cross-border alliance activity.
A buyer of LGT must have skill, or become knowledgeable, about the cross-cultural money management differences between the United States and Europe, Mr. Schoppig.
LGT said the recent change in senior staff in LGT's Hong Kong office was not related to the announcement to sell the company. Peter Lord has stepped down as managing director of the asset management operation there, to lead LGT's strategic alliance team. Oscar Wong, senior vice president of investment management and research in LGT's Canada office will become managing director in Hong Kong.
Numerous senior staff members left Chancellor this year, including Warren Shaw, Chancellor's global chief investment officer and chief executive officer, who resigned in August. Performance in large-cap growth equity investments began to sink, which Mr. Loach said was due to an overweight in technology stocks. During the summer alone, Chancellor was terminated by at least a half-dozen pension funds.
On the upswing
Performance has improved, said Nina Lesavoy, head of client service for Chancellor LGT. The firm reported a 10.7% return for the third quarter ended Sept. 30 for large-cap growth equity, compared to the Russell 1000's 7.52%.
No matter how things appear, "this is not the case of one group fitting and it's not a question of buying Chancellor then selling it," said Ms. Lesavoy.
LGT bought Trainer, Wortham & Co. Inc. of New York in the late 1980s and sold it back to the firm's principals three years later. LGT did not say it was a bad fit; it said in public statements that it no longer needed Trainer, an active large-cap growth equity and active bond manager, because it had bought GT Capital of San Francisco.