HARTFORD, Conn. -- Aetna Inc. has awarded 20 senior people at its Aeltus Investment Management Inc. subsidiary with a combined 5% stake in Aeltus.
Aetna also has agreed to give executives an additional 3% to 4% annually for the next five years, for a total of 20%, according to company executives. Investment performance must be maintained to receive the future stakes, executives said.
The Aeltus case is the most recent example of the continuing trend of banks and insurance companies trying to better compete with independent money managers for staff.
Rodger Smith, a partner at Greenwich Associates, a Greenwich, Conn., research and consulting firm, said the Aeltus event reconfirms what was known 20 years ago: investment professionals prefer stakes in the firm to bonuses and high compensation.
More of these type of ownership deals may begin to surface, Mr. Smith said, as executives at banks and insurance companies consider the most effective way to create powerful investment subsidiaries.
Three-quarters of the Aeltus beneficiaries are investment managers, with business managers holding the remaining Aeltus stakes. Each stake will vest over five years; executives will continue to get base salaries and bonuses, the company said. Aetna previously owned all of the firm.
Hartford, Conn.-based Aeltus had $48 billion in total assets under management on June 30, $32 billion of which was pooled and separate account institutional assets. The firm offers domestic and international active equity and domestic fixed-income investing. It also manages nearly $17 billion in Aetna mutual funds and annuities.
John Kim, Aeltus president and chief executive, said the idea for awarding ownership stakes started at the asset management firm and worked its way up to Aetna's top officials.
"I was showing Tom McInerney (president of Aetna Retirement Services Inc.) our investment performance," Mr. Kim said.
"He said, 'How do we assure that we don't lose any of the best people in the organization?' I told him ownership was the only way."
Mr. Kim then began to gather the information Aeltus needed to determine the firm's value. Using asset management valuation analytics from New York investment bank Putnam Lovell de Guardiola & Thornton, the group compared Aeltus to other firms, looking at asset base, earnings and other determining factors.
He wouldn't reveal the value, but said he told Aetna executives, "Here's what we're worth, so we should earn 20%."
Meanwhile, Aeltus is looking to acquire a boutique manager. A conservative, quantitative fund manager, such as Aeltus, "with a complimentary style" would be valuable to the franchise, Mr. Kim said.
Aeltus offers an active international strategy, but would be interested in another international manager, he said.
"We would use Aetna's capital to acquire a money manager, but we'd do it intelligently so that it would help us grow Aeltus," said Mr. Kim, who is also chief investment officer.