DENVER Thomas F. Marsico is paying a 145% premium to buy back his hot-performing growth equity shop from Bank of America Corp., but he isnt complaining.
Denver-based Marsico Capital Management LLC has soared to $110 billion in assets under management from the $4.7 billion it had when the firm sold its initial stake to BoA in 1999. (The firm had $15 billion in assets under management when the bank bought the rest in 2001.) In total, Bank of America paid $1.1 billion to buy the firm. Now, Mr. Marsico is buying it back in a deal closing in the fourth quarter for $2.7 billion.
Mr. Marsico said he no longer needs BoA for retail distribution the original impetus for the sale. And now he also can share equity ownership with younger employees.
Industry watchers say the firms strong performance and brand name will help it prosper, and Mr. Marsico predicts continued growth, although he did not specify any targets.
So far, growth has been stunning. Assets under management as of Nov. 5 were up 32% from the $83.6 billion reported as of Dec. 31 by eVestment Alliance, Marietta, Ga. That growth came on top of 33% jump in assets from the previous year, according to eVestment data.
In the late 1990s, when BoA took a 50% stake in the firm, there was a widely held belief that small boutique firms would buckle under the pressure of trying to compete with larger banks, said Mr. Marsico.
At the time, distribution was very important, he said. But now, its easier for boutique firms to reach potential investors.
The market has come a long way, agreed Kevin Quirk, a partner at management consulting firm Casey Quirk & Associates LLC, Darien, Conn.
If you are a mutual fund manager, the old way was youd get 100 wholesalers and try to pitch your product in local markets, said Mr. Quirk. Now, large retail distributors offer platforms that are very good at deciding whos good and whos not. Most of these (distributors) are open to boutique firms, he said.
Marsico Capital isnt completely breaking its ties with BoA. The firm will continue to subadvise some $26 billion for BoAs asset management arm, Columbia Management Group, Boston.
Including the Columbia funds, Marsico runs $55 billion through subadvisory relationships, its largest line of business and what had contributed most to recent growth, Mr. Marsico said. Marsico-branded mutual funds have some $12 billion in assets; another $20 billion is managed for institutional clients and an additional $16 billion is managed for brokerage houses, he said. All assets are as of Sept. 30, when the firm had $103 billion in assets.
The tremendous growth in assets has been fueled by strong performance across all four of the firms equity strategies. Marsicos growth style is coming back into favor and excellent stock selection has boosted performance, said Karen Dolan, mutual fund analyst who covers the firms domestic strategies at Morningstar Inc., Chicago. Marsico differentiates itself from other growth managers by not running a technology-heavy portfolio, she said, although the few tech stocks the firm does own have performed very well.
The $14.2 billion all-cap growth strategy returned 6.84% in the quarter ended Sept. 30, beating the Russell 3000 benchmark by 4.81 percentage points; returns were 33.56% in the 12 months ended Sept. 30, 17.12 percentage points above the benchmark, according to eVestment.
The $26.1 billion large-cap focus portfolio, a growth strategy, returned 10.94% for the third quarter, topping the Standard & Poors 500 benchmark by 8.91 percentage points; the return was 22.35% for the 12 months, 5.91 percentage points better than the benchmark. The three-year return for the large-cap focus strategy was an annualized 15.13%, 1.99 percentage points better than the index, according to eVestment.
The $47.5 billion large-cap growth and $15.6 billion Marsico international opportunities strategies, a midcap to large-cap international growth portfolio, returned 8.34% and 10.74%, respectively, for the quarter. The growth strategy beat the S&P 500 by 6.31 percentage points while the international portfolio beat the Morgan Stanley Capital International Europe Australasia and Far East index by 8.56 percentage points in the third quarter.
Twelve-month numbers were also strong with the large-cap growth strategy beating its benchmark by 7.76 percentage points with returns of 24.71% and the international strategy returning 33.78%, 8.92 percentage points better than the benchmark.
The rapid growth in assets is a source of concern for one analyst that tracks the firms domestic strategies. (Mr. Marsico) is running a lot more money and his funds are focused in nature, said Ms. Dolan. If he is wrong, the cost of getting out of those holdings can be pretty high, she said.
No problem with growth
Another consultant, however, doesnt see a problem. For a man thats playing mostly in the large-cap space, it doesnt seem like its an issue, said Michael Rosen, chief investment officer at Angeles Investment Advisors LLC, Santa Monica, Calif.
The large-cap focus strategy has 30 holdings while the large-cap growth strategy has 46, according to eVestment.
They talk a lot about managing that growth in terms of not adding too many more clients, added Ms. Dolan.
Mr. Marsico declined to give growth projections. He said the firm generally has a very marketing-lite structure. Its a very word-of-mouth type of business, he said.
One private equity manager who invests in money management firms said the firms reputation will work for it. Obviously they were wildly successful before buying themselves out. They are a great brand name, said Paul Greenwood, partner at Northern Light Ventures LLC, Tacoma, Wash.
Not much will change at Marsico once the buyback deal closes, said Mr. Marsico.
Weve always operated independently, he said, noting the firm had its own compensation structure, benefits platform and legal department, among other things, separate from that of BoA. The only change will be a greater sense of ownership among our employees, he said.