BOSTON - Thomas Weisel Partners LLC acquired value equity manager ValueQuest/TA LLC and incorporated the firm into its subsidiary, Thomas Weisel Asset Management.
Thomas Weisel acquired the 20-year-old Marblehead, Mass., firm from ValueQuest and minority owner TA Associates Inc., Boston, which acquired 40% of the manager in 1998. Terms of the deal were not disclosed.
ValueQuest brings about $500 million in assets under management to Thomas Weisel Asset Management, raising its total to $2.7 billion. In addition to the value equity capabilities it acquired from ValueQuest, Weisel is incubating growth equity portfolios and plans to launch a growth equity arm based in San Francisco.
While the firm no longer will carry the ValueQuest name, ValueQuest co-founder and Chief Executive Officer Katherine Magrath will remain with the firm as co-chief investment officer; she will share those duties with Tim Keefe, president of Tailwind Investment Partners, a hedge fund manager and Thomas Weisel affiliate. Mr. Keefe will continue his role with Tailwind in addition to serving as co-CIO.
Ms. Magrath, who co-founded ValueQuest in 1982, said she is excited about the opportunity to join Thomas Weisel and "growing the organization to the point where a firm the caliber of Thomas Weisel finds us attractive." She also said the deal helps ValueQuest "realize the dream" of increasing assets under management and seeing the firm move to the second generation and beyond.
"We'll have greater access to capital, to more investment professionals, to top-tier investment research that will strengthen our portfolio management process, and to a stronger distribution network," she said.
The purchase of ValueQuest speeds up Thomas Weisel's entry into the asset management business. Mr. Keefe, who joined the firm in 2000 after managing the Hancock Small Cap Value Fund for John Hancock Funds Inc., Boston, said the opportunity to acquire ValueQuest was too good to miss.
"It's an incredible opportunity that opened up for us," said Mr. Keefe, adding the firm is building a traditional asset management business from the ground up. The acquisition of ValueQuest catapults the plan forward about three years, he said. "This is an organization that put up the shutters and stuck to its discipline through the 100-year storm" that the value market went through, said Mr. Keefe.
Ms. Magrath said she gradually would hand over the investment reins to Mr. Keefe in the next year or two, then retire. Until then, she said, she is "totally committed" to managing money and working with Thomas Weisel. Terrence Magrath, CEO and co-founder of the firm along with his wife in 1982, retired with the acquisition by Thomas Weisel.
Staying where they are
The ValueQuest portfolio management team will remain in place as the staff relocates to its new Boston headquarters. Ms. Magrath will continue to manage assets for ValueQuest's four value equity portfolios: all-cap U.S.; midcap U.S.; international all-cap; and global all-cap. Thomas Weisel also is launching a small-cap value portfolio to be managed by Mr. Keefe and portfolio manager Shaun Pederson.
When the value market hit rock-bottom in early 2000, so did ValueQuest, a contrarian or "deep" value manager. It lost its biggest client, the $151 billion California Public Employees' Retirement System, Sacramento, which terminated two ValueQuest/TA portfolios in 2000. CalPERS terminated an international value portfolio and a domestic value portfolio accounting for $750 million in assets - more than half of ValueQuest's assets under management.
Since the market turned in 2000, performance has turned around at ValueQuest. The all-cap portfolio is up an annualized 12.6% for both the three- and five-year periods ended March 31, outperforming the Russell 3000 index returns of 4.6% and 11.5%, respectively. The midcap portfolio returned 15.1% for the three-year period, bettering the Russell MidCap Value index by some 450 basis points. All four portfolios are in positive territory this year, with the U.S. midcap value leading the way, up 10.5% in the first quarter.
ValueQuest has kept clients abreast of the acquisition. Officials at the $9.9 billion State Universities Retirement System of Illinois, Champaign, have been talking with ValueQuest for months. ValueQuest manages about $50 million in international value equities for the system. CIO John Krimmell said officials are evaluating the potential impact of the purchase, as they do with all acquisitions. He said performance has been strong,
ValueQuest has had a difficult time bringing in assets with a limited marketing and sales staff, said Ms. Magrath. The firm's sole marketer, Greg White, left last spring to join Thomas Weisel in San Francisco.
With the Weisel deal, the firm gains marketing and sales staff, additional investment research depth, and improved distribution, said Ms. Magrath. "Now we have five pairs of shoes when the rubber hits the road, not just one."
It also reunites ValueQuest/TA with Mr. White who, with his staff of four, will lead the marketing and sales effort for Thomas Weisel Asset Management. Mr. White was instrumental in getting the discussion going between ValueQuest/TA and Thomas Weisel.
Ms. Magrath said the marriage was a good fit for ValueQuest not only from a marketing and distribution standpoint, but also an investment perspective. "Tim's team adds depth, and Greg's team adds sales and marketing support," she said. In addition to research and sales staff, ValueQuest also gets back-office support, technology, trading and accounting with Thomas Weisel.
Donald Putnam, president of Putnam Lovell, San Francisco, sees the two value-oriented companies as a good strategic fit. "The investment process at ValueQuest is an echo of the strategy at Thomas Weisel," said Mr. Putnam. "Katherine Magrath is one of the great investors in our industry; she'll be passing the baton to strong capable hands" in Mr. Keefe, he said.
Mr. Putnam sees great potential for Thomas Weisel in the mutual fund and high-net-worth markets with the combination of strong investment process and philosophy, performance and distribution.
Also, from a business standpoint, consultants say Thomas Weisel is a better fit for ValueQuest than TA Associates. "Thomas Weisel has made a commitment to building the asset management business," said Kevin Quirk, partner at Casey, Quirk & Acito, Darien, Conn. "It's a very important part of their long-term strategy and they bought an organization that is modest in assets but very strong," he said. TA Associates is a venture capital firm with the tactical strategy of making an investment and having an exit strategy.
Andy McLane, senior managing director at TA Associates, said the investment in ValueQuest was originally done to diversify TA assets from private equity and buyouts. But, he said, the association between the two firms wasn't adding value like he thought it would so both parties felt it was in the best interest to part company. "They got a great opportunity to join Thomas Weisel and they took it," he said.