AMSTERDAM ABN Amro Asset Management Holding NV may be of more value to potential buyers in parts than as a whole, say money management analysts, consultants and investment bankers.
The firm, with €193.3 billion ($257.9 billion) in assets under management, is under scrutiny as parent ABN Amro Bank NV, Amsterdam, continues exclusive merger talks with Barclays PLC, London, and reviews its operations in the face of pressure from shareholders.
Few of those interviewed for this story see much fit between quant specialist Barclays Global Investors and multiproduct house ABN Amro, but they suggest the Amsterdam-based firms constituent parts might attract attention.
ABN Amro AM is a different business to BGI and integrating it into BGI is not plausible. So either retain it as an ongoing business or dispose of parts of it, said Ray Soudah, founder of Millenium Associates AG, Zug Switzerland, a mergers and acquisitions adviser.
Attractive pieces of the organization include:
• its Dutch client base;
• its currency and fixed-income operations;
• its specialist subsidiaries such as Montag & Caldwell, Atlanta; Artemis, London; and hedge fund-of-funds manager International Asset Management, London; and
• its European distribution network.
ABN Amro AM was put together from pieces, so it is likely to come apart in pieces, said a New York-based investment banker, who asked not to be named.
Barclays spokesman Stephen Whitehead did not return calls for comment by press time. Frank Goasguen, ABN Amro Asset Management global head of financial institutions and corporate clients, would not comment on the merger talks or the implications for the asset management operations.
ABN Amro AM is considered a relatively small part of its parents overall business and is not central to negotiations between the two banks, sources say. In its financial statements for calendar 2006, ABN reported its asset management operation contributed 4% to total group profits of €4.8 billion.
If sold off, ABN Amro AMs core Dutch institutional business could give another money manager either in the U.S. or Europe quick entry into this large and influential market. The firm is a midsize player in the Netherlands and manages around e17 billion for Dutch institutions.
At mid-2006, the most recent period for which data were available, it was the 12th largest manager of external pension plan assets in the Netherlands, according to Frits Bosch, director of Bureau Bosch, Nuenen.
Millenium Associates Mr. Soudah believes ABN Amro AM would be most attractive to a European manager of similar size, as there would be savings from economies of scale.
Gathering more Dutch assets is not likely to be a priority for BGI executives. BGI already is the largest external manager of Dutch pension assets with €57.9 billion in assets under management for local clients, according to Mr. Bosch.
But BGI officials are known to want to expand the firms client base in Europe beyond the U.K. and the Netherlands, and recently opened an office in Switzerland.
BGI executives might be keen to use ABN Amro AMs presence in Italy and Spain to improve distribution in Europe. ABN Amro AM also has distribution in the Middle East and South Africa and asset management operations in Brazil that might be attractive to a new owner, according to Jorik van den Bos, senior portfolio manager at Kempen Capital Management, Amsterdam.
Despite its Dutch heritage, ABN Amro AMs client base in the Netherlands has shrunk as clients abandoned balanced for specialist mandates or dropped the firm for poor performance, money manager consultants said. Foreign money managers have been eating ABN Amro AMs client base for lunch, said one investment banker who asked not to be named.
Most sources interviewed for this story view the firm as having an unremarkable product offering rooted in its legacy balanced business. Its a normal asset management operation of a universal bank. There is nothing unique about it, said Milleniums Mr. Soudah.
Poor equity performance
Equities managed in Amsterdam have been dogged by poor performance partly related to the firms growth bias; its core European and global equity funds have struggled to do well, said Mr. van den Bos.
Performance data from Morningstar Inc. show the firms large-cap growth equity strategy with a three-year compound annualized return of 4.4% as of Dec. 31, underperforming the S&P 500 by six percentage points. The International Emerging Markets equity portfolio posted a three-year return of 29.9%, lagging the MSCI Emerging Markets indexs return of 30.5%.
Mr. Goasguen acknowledged the firm had difficulties in some of its equity portfolios, particularly growth-oriented ones, in the early part of the decade. But he said the firm had a much broader and diverse offering than just equities. Historically the firm has been associated with equity growth products that is a very narrow view of us, he said.
Mr. van den Bos agreed there are a few niche products such as emerging market debt and equity in which the firm has had good performance.
ABN Amro officials also have had some client success in currency management and fixed income (from its London team led by Paul Abberley), said a money manager analyst who asked not to be named.
Mr. Goasguen said ABN Amro AM officials have been building expertise in client-specific strategies for managing assets in line with liabilities, a fiduciary management service in the Netherlands, and tactical asset allocation services. They also have been putting effort into absolute-return and portable alpha strategies. The firm has €11 billion in liability-driven strategies now.
This move to structured solutions is very logical for a firm that used to cover client needs through balanced mandates, he said.
In February, ABN Amro AM was awarded a mandate to manage the strategic risk profile of the €2.2 billion SBZ pension plan, Driebergen, Netherlands. ABN Amro AM will also advise on strategic asset allocation and manage interest-rate and currency hedging for the fund. Mr. Goasguen sees the assignment as a way for the firm to demonstrate its customized strategies.
This is how we would like to been seen going forward. We think fiduciary management will spread across Europe, and it fits our style of where we want to be in the asset management world, he added.
If ABN Amro AM is not broken up, there could be some shareholder value in listing it separately from its parent.
Typically, European banks trade around 10 times earnings before interest, tax, depreciation and amortization, while publicly traded fund management firms trade about 15 times EBITDA, said Ben Phillips, managing director at Putnam Lovell Securities Inc., New York.
Analysis of ABN Amro AMs earnings statements for the year ended Dec. 31 show an operating margin of 29.1%, which was reasonable, according to a U.K.-based investment analyst who asked not to be named. He described the money managers average fee level, at 40 basis points, as high and said it reflected the large size of the groups retail business. Mutual funds account for 42% of the firms total assets.
In early 2005, ABN Amro established the asset management business as a separate legal entity from the bank, which observers saw as a move to accelerate a sale of the business. But ABN AMRO Asset Management spokesman Albert Holtzappel said it was done for legal reasons and to enforce the Chinese wall between investment banking and money management.