For sale at AIG: PE firms are likely suitors for asset unit

With AIG shedding a number of its businesses to pay back government loans, its money management unit — which runs more than $111 billion in global assets for external institutional and retail clients — appears to be the next business to be put on the block by the distressed insurance giant.

Sources throughout the investment industry said that officials for New York-based American International Group Inc. sent the investment management unit's books out to a number of interested buyers near the end of January, and bids are due this week.

It’s still early in the sale process, of course, but the sources said many of the private-equity firms that pursued New York-based Lehman Brothers Holdings Inc.’s Neuberger Berman LLC investment management division last year are early front-runners for AIG Investments, one of the largest money management units in the world.

That means Bain Capital LLC of Boston and Hellman & Friedman LLC of San Francisco — whose combined $2.15 billion bid for Neuberger was topped by Neuberger’s senior management in December — are heading the list of potential buyers, sources said. Other private-equity firms, such as Carlyle Group LP in Washington and Kohlberg Kravis Roberts & Co. of New York, could emerge as strong candidates as well.

“It’s a distressed sale, and many of the private-equity firms that have been trying to buy their way into the asset management business think they might be able to buy this group at a relative bargain,” said one investment banker familiar with the sale, who spoke on condition of anonymity. “But we should find out if that’s the case soon enough.”

Charlyn Lusk, spokeswoman for Bain Capital; Monica Everett, spokeswoman for Hellman & Friedman; Michelle Ong, spokeswoman for Carlyle Group; and Peter McKillop, spokesman for KK; each declined to discuss a potential bid for the business. Win Neuger, chairman and chief executive of AIG Investments, was not available to discuss the potential sale, and spokesman Joe Norton said that the firm would not comment on any of its asset sales or divestitures.

AIG Investments runs a total of $676 billion in assets. But about $565 billion is affiliated with AIG’s insurance business. The company has elected to sell, as a stand-alone business, the part of AIG Investments that runs the remaining $111 billion for outside clients.

Sources with knowledge of the sale, which is being run by investment bankers at Zurich, Switzerland-based UBS AG, said the AIG money management unit could end up fetching $1.5 billion to $2 billion.

But the sources said AIG’s money management unit has relied heavily on the parent company’s global presence for distributing its products, and bankers are still attempting to measure the unit’s true value as a stand-alone entity. This could lead to a wide range in bids submitted in the first round of the sale process this week, so investment bankers were reluctant to put a specific price on the business just yet.

No matter the price tag, however, the sale is still expected to register as one of the largest asset management deals in the last year.

Money management transactions in the United States in 2008 totaled just $6.3 billion, the lowest levels in years, according to data compiled by New York-based investment bank Cambridge International Partners Inc.

“Large private-equity firms are about the only players that have a lot of firepower to support a major transaction such as this one,” said John Temple, managing director at Cambridge.

There is a possibility, however, that several smaller private-equity firms could team up to place a joint bid on the AIG business. Several sources said that there have been more than a dozen such firms “kicking the tires” in recent weeks, which could ultimately play a factor in the bidding war.

Part of the reason AIG Investments could be drawing so much interest is the distressed nature of the sale, said Kevin Pakenham, a London-based managing director with New York investment bank Jefferies Putnam Lovell. But the business also has a fairly wide set of investment products that could be attractive to suitors looking to launch a diversified asset management business, he pointed out.

About $48 billion, or more than 40% of AIG Investments’ $111 billion in external assets under management, is in its U.S. and international fixed-income strategies. But it also has another $16 billion of assets in alternative investment strategies, $15 billion in international equities, $14 billion in multistrategy hedge funds, $11 billion in U.S. equities, and about $7 billion in real estate products.

The asset breakdown between retail and institutional clients couldn’t be ascertained by press time.

Potential buyers had expressed considerable interest in acquiring some of these pieces of the AIG Investments business, sources added. But apparently, AIG executives are looking to sell the unit in one piece, as there is a pressing need to raise cash and repay the bulk of the federal rescue money, which totaled nearly $150 billion.

It is unclear when the sale will be completed, but AIG in recent weeks has accelerated its effort to shed the unit. On Jan. 20, for instance, it made Mr. Neuger responsible for overseeing the unit that is for sale, and also appointed Senior Managing Director Jeffrey Hurd as head of asset management restructuring — a new post.

After the sale, AIG is expected to focus on the sale of its $12.4 billion global real estate fund management business, and perhaps AIG Retirement in Houston, sources added.

Mark Bruno is a reporter at InvestmentNews, a sister publication of Pensions & Investments