CHICAGO -- WestLB Asset Management Ltd. bought the private equity management division of Forstmann-Leff International Inc. as part of a plan to quickly set up a U.S. multiasset management unit.
Terms were not disclosed. The new unit, WestAM US LLC, is seeking to buy straightaway a U.S. domestic equity manager, said Donald W. Phillips, who resigned as president and chief executive officer of Forstmann-Leff to become chairman and CEO of the new unit.
"I expect we will make at least two acquisitions by the end of the year," Mr. Phillips added. He said the first of those could be announced by the end of July.
Executives are looking for a manager with $3 billion to $5 billion in assets, "an established, profitable firm," Mr. Phillips said.
Chicago-based WestAM US is seeking to develop quickly into a manager with multiasset capabilities. He said it is looking at any style. "No matter which one we start with, we will add pieces over time," he said.
Mr. Phillips bought out Forstmann-Leff's private equity group in May, lifting out $1.6 billion under management and a 14-member team. He set up the group as Phillips Capital Management LLC, a registered investment adviser. Then he sold his newborn firm to WestLB Asset Management.
Mr. Phillips said the Forstmann-Leff private equity clients, all tax-exempt institutions, have stayed with the new firm. He wouldn't name them.
WestLB AM, the London-based organization, began its efforts to establish a U.S. money management operation last year when it bought Criterion Investment Management LLC, Houston, from Nicholas-Applegate Capital Management, San Diego.
Criterion, which manages $10 billion in U.S. fixed income for 50 institutional clients, won't become part of WestAM US for now. Mr. Phillips said that issue will be revisited in a year or so.
WestLB AM in London is the global money management arm of Westdeutsche Landesbank Girozentrale in Dsseldorf, Germany. It manages $33 billion. Mr. Phillips said the London-based organization plans to change its name to WestAM Ltd.
Sticking to equities
Forstmann-Leff now will offer only traditional equity management, ending its three-year effort to build a multiasset manager.
In February, Forstmann-Leff sold its $700 million fixed-income management business to Pareto Partners, London. The entire fixed-income team moved with it.
In 1997, New York's Refco Inc. partnered with Forstmann-Leff Associates Inc. and Mr. Phillips to form the holding company of Forstmann-Leff International with the intention of forming a multiasset management company.
William Harnisch, chief executive officer and chief investment officer of Forstmann-Leff Associates, said his firm sold its traditional equity management to Refco to become part of the holding company.
That same year, Forstmann-Leff International lifted out the fixed-income team from UBS Asset Management Inc., New York. Also that year, Mr. Phillips began the firm's private equity management business.
"The sale of the fixed income (by Forstmann-Leff) was the beginning of the process of dismantling the multiasset firm concept," Mr. Phillips said. "The sale of private equity was the last piece by Refco to return to being solely an equity manager."
With the departure of Mr. Phillips, who had a minority stake in Forstmann-Leff International, Refco will be its sole owner.
Forstmann-Leff Associates manages about $8.5 billion, including $5.5 billion in growth-oriented equities, almost all for tax-exempt clients. It also manages $3 billion in hedge funds for individual and institutional clients.
Clients are staying
Mr. Harnisch said clients of the traditional equity and hedge fund strategies are staying with the firm.
Forstmann-Leff International now consists only of Forstmann-Leff Associates. Mr. Harnisch said FLA plans to launch a European growth-oriented equity strategy this fall. It will be run in New York by Charles Rupinski, vice president, who was hired from Morgan Stanley Dean Witter Inc. in London, where he was a European analyst.
Mr. Harnisch said the multiasset effort failed because it never reached critical mass. He said he might try to revive it at some point, but it's not a priority.
Mr. Phillips said he and all the others who have joined WestAM US are exercising their right to buy stock in WestAM US, making them collectively significant minority shareholders and allowing them to share in the profits of the firm they are helping to build.
Mr. Phillips will report to Richard Wohanka, global chairman and CEO of WestLB AM in London.
Mr. Phillips, who will also be chief investment officer of private equity at WestAM US, is a former chief investment officer of the Beatrice Corp. and Ameritech Corp. pension funds, and was chairman at Equity Institutional Investors Inc., Chicago, a firm connected with real estate investor Sam Zell.
Funds of funds approach
Private equity "is a very significant asset class that has a lot of room to grow," Mr. Phillips said.
The private equity group, while it invests mostly domestically, has $100 million invested internationally. It invests in a range of areas from venture capital startups to large-cap buyouts, mostly through funds of funds.
It has $75 million to $90 million invested directly in some of the companies in the portfolios of the funds of funds. It is willing to invest in companies outside the fund of funds portfolio, but hasn't yet, he said.
People moving with the private equity group to WestAM US from Forstmann-Leff include: John Podjasek, head of private equity; Greg Oberholtzer, senior vice president in marketing; and Celia Chapman, Christopher Pace and Lloyd Thompson, portfolio managers. Walter Dec, an executive in private equity, will move to the new firm briefly and then retire, Mr. Phillips said.
Six others are joining from the Forstmann-Leff support group.