Gartmore move to spur a freedom movement

Hellman & Friedman LLC, the private equity firm that joined with the management of Gartmore Investment Management PLC to buy the company from Nationwide Mutual Insurance Co., expects a growing number of European money managers to seek independence.

In a telephone interview shortly after the Gartmore deal was announced on May 25, Patrick Healy, managing director who heads up Hellman & Friedman's European operations, said the awakening of Europe's "equity culture" should accelerate the trend there toward separation of distribution and manufacturing that is already well under way in the U.S. This, he said, will pave the way for deals aimed at better "aligning incentives" by putting equity in the hands of money managers.

In the case of Gartmore, market watchers said the "key man" whose interests needed aligning was Roger Guy, investment director and the executive credited with building up the firm's sought-after hedge fund operations.

In the end, said one Gartmore veteran who declined to be named, it was Mr. Guy's preference for working with Hellman & Friedman that gave the San Francisco-based firm a leg up in the competition to buy London-based Gartmore.

As part of Hellman & Friedman's focus on aligning incentives properly, executives there have said in the past they prefer the managements of firms they back in buyouts to own far more equity than Hellman & Friedman does.

In the case of Gartmore, however, market watchers said the two sides will end up with roughly equal shares of the firm's equity. The purchase price came in at less than £500 million ($935 million), a bit below the range of £500 million to £550 million some investment bankers had been predicting.

Still, with just less than $45 billion in assets under management, the Gartmore MBO stands as the biggest ever in the money management sector, roughly twice the size of the next closest MBO — Houston-based AIM Management in July 1993, when the firm had $22.6 billion in assets under management, according to data provided by Putnam Lovell NBF Securities, New York.

In a telephone interview, Allen Thorpe, a managing director with Hellman & Friedman, declined to discuss the details of the Gartmore buyout. But he said the significant equity that will end up in the hands of Mr. Guy and the "great constellation of stars around him" is exactly the type of deal his firm prefers to do: making the newly independent money manager "a more stable, vibrant, better quality business" by virtue of the MBO.

With the transfer of equity, Mr. Guy becomes "a building block," rather than a "question mark," Mr. Thorpe said.

The Gartmore news release announcing the deal quoted Mr. Guy saying his team is "100% committed to Gartmore as a result of this transaction."

Mr. Guy will become one of three employees on the firm's seven-member board, which will include three Hellman & Friedman executives and one independent director.

In a separate news release, Columbus, Ohio-based Nationwide said its exit from Europe will allow it to focus on its "more rapidly growing U.S.-based consumer and small-business markets," where it will look to expand its mutual fund operations. With the sale of the U.K. operation, Nationwide retains Gartmore Global Investments Inc., a Conshohocken, Pa.-based firm that manages more than $46 billion in mutual fund, separate account, collective investment fund and other pooled assets.

Nationwide spokesman Eric Hardgrove said the Gartmore name — for both the U.S. money management unit and its mutual funds — will be changed.