BOSTON — A hedge fund's attempt to lure away a top small-cap equity team proved the tipping point that led Babson Capital Management LLC to cut its links with its long-only past and focus exclusively on absolute return.
On Jan. 30, Babson announced it would transfer its long-only equity capabilities — including 15 investment professionals and, pending client approvals, almost $5 billion in assets — to crosstown affiliate OFI Institutional Asset Management. Both firms are subsidiaries of Massachusetts Mutual Life Insurance Co.
Chuck McKenzie, OFI Institutional's chairman and chief executive officer, said the friendly, "internal liftout" should help clarify each firm's image in the market, with OFI focusing on benchmark-relative strategies while Babson focuses on alternatives and absolute return strategies.
After years of consultants asking about the overlap between the two Boston-based institutional money management affiliates, there's probably a sense of "it's about time you guys did this," he said.
No cash is changing hands, even though observers figure Babson is losing at least $20 million in annual revenue from the assets it is relinquishing.
For OFI Institutional, the charms of the deal are obvious. The firm — which garnered $1.8 billion from 18 new clients last year to lift its assets under management to $7.2 billion — had been actively looking to add small-cap and midcap equity teams to its lineup, said Mr. McKenzie.
One of the only issues OFI executives had to consider was whether the time and effort required to woo the clients behind that $5 billion could derail the momentum the firm had built up during 2005.
The past year was "by far and away our best," said OFI President Jeffrey Lagarce. And "2006 is off to even a faster start," with eight new clients either funding or extending new mandates to OFI last month, he said.