ORINDA, Calif. -- With its purchase of majority interest in Rosenberg Institutional Equity Management, AXA Investment Managers will get cutting-edge investment technology and a revitalized approach to quantitative investment management.
French-owned AXA, with $600 billion under management, also expects to improve its name recognition in the United States through the renaming of RIEM to AXA Rosenberg Group.
RIEM hopes to overcome the reluctance of some European and Asian investors to give money to small boutiques -- by offering its products worldwide through AXA companies.
AXA Investment Managers, Paris, agreed to pay about $125 million for roughly a 60% interest the Rosenberg Group affiliated companies, the centerpiece of which is RIEM, Orinda, Calif.
Barr Rosenberg founded RIEM and is chief investment officer; he is managing general partner of Rosenberg Group and owns about 80% of Rosenberg Group.
Investment banking firm Putnam, Lovell, de Guardiola & Thorton Inc., San Francisco, assisted AXA in the deal.
RIEM, a hot money management boutique in the early 1990s that cooled somewhat, has reclaimed the spotlight with a new menu of sought-after small-cap equity, international equity and market-neutral investment products. RIEM's assets under management boomed from $3.6 billion in late 1996 to $7 billion today.
With the purchase, AXA IM will gain access to RIEM's database of security and market information and its efficient, low-cost trading and back-office technology that has helped RIEM grow.
RIEM databases have "gigabytes of information about stocks and companies," Donald Brydon, chairman and chief executive officer of AXA IM, said in an interview.
RIEM collects huge amounts of security and corporate data as part of the information that goes into its rule-based expert systems for stock selection. "Really good, clean, first-rate data in our industry is very hard to get," he said. RIEM "has exceptional research skills."
Through a consulting arm to be set up at AXA IM, the data and technology will be made available to other AXA asset management companies, including AXA IM.
Although AXA IM will have access to the backbone of RIEM's investment process, RIEM's actual stock-picking technology will remain confidential.
But RIEM's trading and back-office technology will allow AXA IM companies to build prototypes of their own and invest with less manual trading and back-office assistance, Mr. Brydon said.
While AXA IM's other investment operations will remain qualitative, investors demand a disciplined investment approach that RIEM's technology is expected to enhance.
AXA IM also is in the midst of an extensive U.S. television and print advertising campaign. AXA IM is the world's third-largest fund manager. In the U.S. AXA Group Co., Paris, AXA IM's parent, has a 60% holding in Equitable Cos., New York, and its subsidiaries, Equitable Life, Alliance Capital Management L.P. and Donaldson, Lufkin & Jenrette Inc. Alliance Capital has $250 billion under management.
RIEM itself has once again become highly popular with institutional and mutual fund investors.
Back in 1991, one-time academic Barr Rosenberg had one of the hottest money management boutiques, gaining $6.1 billion in total assets under management between 1987 and 1991.
RIEM offered the almost unheard-of promise of returning almost 400 basis points over a benchmark with no greater risk than the benchmark. But in 1992, RIEM's computer-driven ability to select stocks in the large-cap equity market fell short of the four percentage point alpha return.
RIEM's assets under management began to fall, hitting a bottom of $2.4 billion around 1995.
But Mr. Rosenberg reprogrammed his investment approach, focusing on the less efficient small-cap equity market and developing market-neutral strategies that are now much sought after.
"We made changes to the stock selection process," said Marlis Fritz, a general partner with RIEM.
RIEM now has a little over $1 billion in core U.S. equity. It has about $3 billion in small-cap equity; about $600 million in Japanese equity; about $200 million in global equity; about $300 million in European equity; about $200 million in international small-cap equity; and $1.5 billion in market-neutral.
RIEM has had strong performance in the European market, but few U.S. investors want to invest in Europe-only products, Ms. Fritz said. RIEM is depending on AXA IM to increase interest among European investors in its current Europe product and planned new strategies.
In the deal, Mr. Rosenberg will become chairman of AXA Rosenberg. Nicolas Moreau, managing director of AXA IM's global structure products division, will become chief executive officer. The arrangement is expected to allow Mr. Rosenberg to spend more time on research.