SAN DIEGO -- Less than five years after it acquired Criterion Investment Management Co., Nicholas-Applegate Capital Management sold the fixed-income manager to a German bank looking to broaden its global investment capabilities.
The sale to WestLB Asset Management, a division of Westdeutsche Landesbank Girozentrale, Dusseldorf, is the final move in Nicholas-Applegate's strategic divestiture of non-core businesses.
Terms not given
Terms were not disclosed. Thomas Courtney, president of The Courtney Group Inc., New York, estimated the German bank probably paid between $100 million and $150 million for Nicholas-Applegate's fixed-income business. Mr. Courtney based his estimate on a calculation that the profitability of the bond business is probably between $10 million and $20 million per year, based on likely revenue of between $20 million and $40 million.
London-based WestLB Asset Management, known as WestAM, was formed last year by combining the various investment management units of its parent. It manages about $26 billion for institutional investors; about 85% are German institutions; and most of the assets are in European equities.
The purchase of Houston-based Criterion is part of WestAM's plan to broaden its investment capabilities beyond its traditional strengths in European bonds and equities, said Luke Nunneley, global head of marketing at WestAM, which also plans to acquire a U.S. equity manager and a U.K.-based global equity/bond manager.
Westdeutsche Landesbank Girozentrale's purchase of Criterion illustrates the German bank's move away from an old business -- a high-risk, high-volatility emerging markets investment banking operation it closed last year -- to a new focus on a more stable new business, investment management, Mr. Courtney said. "The purchase of a U.S. fixed-income manager is a natural move for a German company, which has conservative investors at home with a strong preference for bonds," he said.
Criterion brings to WestAM $9 billion in U.S. fixed-income assets, mainly for institutional investors.
There are 76 fixed-income institutional clients that will go with Criterion to WestAM and 34 balanced account clients. Clients of Nicholas-Applegate's fixed-income division include Dun & Bradstreet Corp., Electronic Data Systems Corp., Hershey Foods Corp., the Chicago Municipal Employees, the Illinois Municipal Employees, the State of Nevada Public Employees, Rice University, Robert A. Welch Foundation and the I.B.E.W. Electrical Insurance Trust.
Fred Robertson, who will remain chief investment officer and adds chief executive officer for the Houston office to his list of duties, said all clients had been contacted and their response generally had been "very enthusiastic."
WestAM's new U.S. fixed-income unit will be renamed Criterion Investment Management, reinstating what Mr. Nunneley said is a recognized brand name among U.S. institutional clients. The Houston operation will be left as an independent office, with no layoffs planned.
All portfolio management staff and management have confirmed they'll stay on at the firm, Mr. Robertson said.
WestAM executives intend to learn all they can about credit analysis and U.S. fixed-income securities from their new employees in Texas.
"As bond markets around the world have become more and more correlated, as European bond managers we realized that we weren't expert enough in North American bonds and equities. We will keep our investment management operations separate, although we will share research," Mr. Nunneley said.
Some administrative functions such as marketing also will be centralized, but Criterion's sales and client service staff will remain independent. A member of WestAM's marketing team will move to the Houston office in a support capacity, Mr. Robertson said.
At Nicholas-Applegate, meanwhile, a top-to-bottom business review led management to focus on providing international and domestic equity and high-yield securities management to large institutional investors and high net-worth individuals through wrap accounts, said spokesman Rick Shaughnessy. After all sales are completed, Nicholas-Applegate will manage about $22 billion for institutional investors.
Nicholas-Applegate sold its domestic and international retail mutual fund businesses to Pilgrim America Capital Group, Phoenix, and to Colonial First State Investments, Melbourne, Australia, respectively, earlier this year. Pilgrim America also picked up Nicholas-Applegate's small, bundled defined contribution plan business (Pensions & Investments, Feb. 22).
Nicholas-Applegate has finished its divestitures, and -- contrary to market speculation -- the changes at the company are not specifically in preparation for an initial public offering, Mr. Shaughnessy said.
"The possibility of an IPO has been discussed, but there are no definite plans yet. The sales of these units are not directly related to any IPO plans, although it is true that a more focused and streamlined company will make Nicholas-Applegate more attractive to investors in the event of an IPO," he said.
Nicholas-Applegate will continue to manage high-yield securities as a subadviser for WestAM/Criterion, which will in turn subadvise the fixed-income portion of Nicholas-Applegate's balanced investment strategy.