In an interview, Mr. Landes said Old Mutual's increasingly powerful brand name and its numerous affiliates with hedge funds suited to a multistrategy product were among the reasons 2100 Capital chose to join the group. The two shared a similar vision for the alternatives business, he said.
By contrast, Old Mutual has formed a "strategic alliance" with Copper Rock, which was launched in February by a team of small-cap growth managers led by Tucker M. Walsh at State Street Research & Management Co., Boston. That team left ahead of SSRM's January acquisition by BlackRock Inc. In exchange for operational support, Old Mutual has an option to acquire a 60% stake in Copper Rock during 2006, Mr. Powers said.
Old Mutual will provide Copper Rock with access to working capital, legal, compliance and risk management systems, as well as sales and marketing support, allowing the new team to focus on investing, said Mr. Powers.
Mr. Walsh is Copper Rock's CEO and head of portfolio management. The firm's other principals include Michael Malouf, president and portfolio manager; Gregory T. Poulos, senior analyst; Michael J. Callahan, head trader; Peter J. Hadelman, head of relationship management; and Michael Sakala, chief financial officer. With the exception of Mr. Malouf, who was head of small-cap growth investing for New York-based Neuberger Berman Inc., all are SSRM veterans.
In an interview, Mr. Walsh said his firm's tie-up with old mutual gives its proven team the boutique environment it was seeking. Copper Rock is hitting the ground running: "We don't see ourselves as a startup," and the firm's reception among clients "has been very good right out of the gate," he said, noting that Copper Rock has already been invited to present in a few finals, he said.
Mr. Powers said Copper Rock and 2100 Capital will expand the array of high-quality investment strategies Old Mutual can offer its clients, even as its current offerings — heavily weighted to sectors institutional investors have focused on in recent years, such as value equities and international investments — enjoy strong demand.
During the technology stock bubble of the late 1990s, that value bias was a major headache: UAM sustained net outflows of more than $15 billion a year between 1997 and 2000, helping set the stage for the firm's sale to Old Mutual.
By contrast, value has been king in recent years, as growth equities suffered through a long, painful hangover. In 2004, Old Mutual affiliates enjoyed combined net inflows of $12.3 billion, up sharply from roughly $5 billion a year in inflows between 2001 and 2003.
That momentum has shown no signs of flagging so far this year, said Mr. Powers. The most recent official figure showed the group with more than $184 billion in assets under management at the end of 2004 — closing in on UAM's March 1998 record of $214 billion.
Mr. Powers said he's not about to leave well enough alone. "We've had a wonderful run here in value and non-dollar securities, but dollar-based growth strategies will have their day in the sun again … and we want to make sure we have high-quality capabilities to offer to our clients," he said.
Copper Rock — "a great team with a proven track record" — suited Old Mutual's business model perfectly, especially as several of the group's capacity-constrained small-cap products are already closed, he said.
Wayne, Pa.-based Pilgrim Baxter & Associates, the group's growth equity champion during the 1990s, saw heavy outflows after the bubble burst in 2000, and endured a subsequent body blow when its founders were caught up in the market timing scandal of late 2003 and forced to resign. The firm changed its name to Liberty Ridge Capital at the end of 2003. Mr. Powers said Liberty Ridge represents a "turnaround" story for Old Mutual, with $3.8 billion in assets under management; Pilgrim Baxter had about $26 billion at its peak in September 2000.
Aside from Liberty Ridge, the only other affiliate with substantial growth equity products is Pasadena, Calif.-based Provident Investment Counsel.
Mr. Powers said Old Mutual will remain on the lookout for superior growth equity teams as it strives to further improve its growth-value balance. Group data showed value equity products accounting for a 35% chunk of Old Mutual's $184 billion in assets at the end of 2004, compared to only 5% in growth equities.
Meanwhile, 2100 Capital should allow Old Mutual to raise its absolute-return investment game to another level, Mr. Powers said.
For the past three years, Old Mutual has been "seeding capabilities within our firms," with an eye toward meeting growing institutional demand for absolute-return strategies, said Mr. Powers.
Today, affiliates such as Analytic Investors Inc., Los Angeles; Acadian Asset Management Inc., Boston; Rogge Global Partners PLC, Westport, Conn.; and Thomson Horstmann & Bryant Inc., Saddle Brook, N.J., can offer hedge fund strategies with attractive three-year records, but until now no one at Old Mutual could pull all those interesting strands together, Mr. Powers said.
The 2100 Capital team should put Old Mutual on the map in terms of offering sophisticated, multistrategy hedge fund vehicles to clients, Mr. Powers said. "They bring the intellectual capital, the institutional quality trading platform, the compliance and the risk management — all the things the institutional client will look for more aggressively as we go forward," he said. "They can be the nexus for our capabilities in the alternatives space."
One senior money manager consultant, who declined to be named, agreed. Having a platform such 2100 Capital's will give Old Mutual "the knowledge and the know-how" it needs to be a player in the absolute-return market, he said.
Old Mutual will look to 2100 Capital to provide a range of products, including a fund of funds, a multistrategy proprietary hedge fund portfolio, a variety of single strategy hedge funds and, in the longer term, a fund of private equity funds. The firm will also partner with Old Mutual's affiliates in developing their own hedge fund operations.
Mr. Landes said 2100 Capital expects to launch the multistrategy and fund of hedge funds products first, hopefully by the second half of this year.
The 2100 Capital team should also leave the group positioned to play the portable alpha game. "The other capability that Bill and his team bring is the ability to separate alpha and beta" to bring "sophisticated solutions to plan sponsors," said Mr. Powers. That process will allow Old Mutual affiliates that boast strong alpha-generation capabilities but have no interest in entering the hedge fund space themselves to benefit, he said.
In addition to adding more high-quality investment capabilities, such as Copper Rock, and diversifying into new areas, such as absolute return, the third leg of Old Mutual's strategy remains "growing and developing our capabilities in the retail segment of the market," said Mr. Powers.