BOSTON Thomas F. Marsicos decision to buy back his fast-growing firm from Bank of America Corp. sets back the banks goal of boosting the contribution asset management makes to its bottom line. Industry watchers say it remains unclear whether BoAs main money management arm, Columbia Management Group, can fill the gap.
In an interview, Keith T. Banks, Columbias chief executive officer and president, said the sharp improvement in the performance of Columbias equity strategies in recent years is poised to provide significant organic growth opportunities for the bank. Moreover, with its traditional house now in order, Columbia is beginning to develop the alternatives strategies investors increasingly crave, he said.
Those opportunities would have to be significant to make up for the departure of Denver-based Marsico Capital Management LLC, whose assets under management surged from $4.7 billion in February 1999, when BoA bought its first stake in the firm, to $94 billion now, despite a vicious bear market for growth equity investors like Marsico.
Marsico has pulled in institutional accounts, as well as being Columbias biggest magnet for retail money. Marsico will continue to subadvise roughly $35 billion for Columbia.
Terms of the deal werent disclosed; investment bankers estimated a price tag of at least $2.5 billion based on standard multiples of assets under management or revenue.
How big of a blow the deal is to BoAs money management ambitions isnt certain.
One investor in money management firms, who declined to be named, said, I think theyre in major hot water and should be looking to get out of manufacturing altogether.
Others, however, say the independence Marsico jealously guarded from the moment it became a part of BoA will minimize any disruption.
There comes a certain size, a certain time in a money managers (existence) where the asylum is not just run by the inmates, its owned by the inmates, said Donald H. Putnam, managing partner of New York-based investment bank Grail Partners.
From an earnings perspective, it will be disappointing for Bank of America, but since (Marsico) always operated as a stand-alone entity, the impact on the broader asset management business will be much less severe, said one investment banker.
BoA executives remain committed to boosting asset managements contribution to the banks bottom line, Mr. Banks said. BoA doesnt disclose that number, but experts figure its well under 5% of the banks net income.
Meanwhile, the continued industry march toward open architecture distributors tapping best-of-breed money managers to sub-advise their funds will force more big financial conglomerates to re-evaluate running their own manufacturing, observers said. That has left a lot of banks grappling with the pros and cons of partial sales of their money management units, noted Benjamin Phillips, a managing director and head of strategy with New York-based investment bank Putnam Lovell NBF Securities.
The Marsico buyback must have prompted a bevy of private equity investors to call other BoA units such as Chicago-based Columbia Wanger Asset Management LP to see if they were similarly disposed. But one investment banker said the recent retirement of founder Ralph Wanger makes it tougher to compare the two situations. Chuck McQuaid, chief investment officer of Columbia Wanger, referred all questions back to Bank of America.
Columbias Mr. Banks said that unlike Marsico, the Wanger unit is fully integrated into Columbia Management. Marsico was a one-off, and people looking to connect the dots to Wanger are off base, he said.
Market watchers say Columbias broader asset management operations have improved markedly in recent years. Colin Moore, brought in four years ago to revive Columbias equity performance, has made considerable progress, giving Columbia sharply improved three-year results for a wide range of key strategies, Mr. Banks said.
Todd Trubey, an analyst with Morningstar Inc., Chicago, said although theres room for further improvement, Mr. Moores system gives talented investors room to work. Lipper Inc. said 62% of Columbias 52 non-Marsico mutual funds posted above-median returns for the 12 months through mid-June, with 68% and 66% outperforming on a two- and three-year basis, respectively.
But one industry watcher familiar with Columbia, who declined to be named, said other firms have been busy developing sought-after alternative investment strategies while Columbia was working to rejuvenate its traditional strategies.
Mr. Banks conceded the point. Before we started going down the alternatives path, we had to make sure our traditional path was in order, he said. Columbia has largely succeeded on the traditional side, and now it is focusing on alternatives as well bringing out its first multistrategy hedge fund offering at the end of last year, and funding its first long-short strategy.