Bank of New York Mellon Corp., State Street Corp. and Russell Investments are among U.S. companies looking to bid on the external money management business of Insight Investment Management Ltd., a leading U.K. specialist in liability-driven investing, say sources close to the negotiations.
“Insight is considered one of the first movers among fund management houses in terms of offering LDI,” said Dave Lyons, investment consultant director and head of research at HSBC Actuaries and Consultants based in London. “While that's not always an advantage, in this instance, (Insight executives) have been proactive in developing the range of offerings so that they've maintained that competitive advantage.”
U.K. firms such as money manager Schroders PLC and Pearl Group — which in 2008 acquired Resolution Asset Management and merged it with internal manager Axial Asset Management to form Ignis Asset Management Ltd. — are also exploring a potential combination.
Private equity firms Hellman & Friedman LLC and Advent International PLC also are looking to acquire London-based Insight, which managed the £74 billion ($124 billion) for external clients as of the year-end 2008. Commonwealth Bank of Australia, which has been buying distressed banking assets in the wake of the financial crisis, is also eyeing Insight, according to the sources.
But a management buyout of Insight is also possible. Abdallah Nauphal, managing director and chief investment officer widely credited with building up the firm, has brought in Fenchurch Advisory Partners, a London-based mergers and acquisitions adviser, to assist in exploring all options. Both Mr. Nauphal and Malik Karim, managing director of Fenchurch who is working on the transaction, declined to comment.
Insight, formerly a subsidiary of HBOS PLC, was inherited by Lloyds Banking Group PLC earlier this year in a government-brokered rescue that saved HBOS from complete collapse. Lloyds officials initially announced they would combine Insight with Lloyds' own fund management subsidiary Scottish Widows Investment Partnership, which had £83 billion in assets at the year-end 2008. As late as March, Lloyds executives planned to appoint Mr. Nauphal to lead business development for both Insight and SWIP.
But disagreement over the terms of Mr. Nauphal's role led bank officials to consider selling the external portion of the business, sources close to the negotiations said. The remainder of Insight's assets will be combined with SWIP when and if a transaction is completed.
Sources said a potential deal most likely will be made by a strategic buyer willing to pay a higher price for the business, but the problem may be Mr. Nauphal himself. A bond manager who joined Insight in 2003, Mr. Nauphal is the driving force behind the company's transformation into an LDI specialist that has attracted external clients. He is chiefly responsible for Insight, which rose from the ashes of Clerical Medical Investment Management Ltd., which was rebranded as Insight in 2002 and a year later acquired Rothschild Asset Management Ltd. The internal assets from Clerical Medical still are managed by Insight and account for about £45.2 billion of the firm's £119.2 billion in total assets.
“The recent success is associated with the current team, particularly Mr. Nauphal,” said a consultant who is familiar with Insight. “Any buyer, therefore, will have to think carefully about losing the current management team.”
So far, negotiations have been dominated by Mr. Nauphal, whom sources say would prefer the MBO option to maintain the firm's independence. That would be good news for private equity firms such as Hellman & Friedman, which already owns London-based Gartmore Asset Management.
Officials from BNY Mellon, SSgA, Russell, Schroders, Pearl Group, Hellman & Friedman, Advent and CBA either declined to comment or did not respond to requests for comment.
An announcement is expected within weeks. Lloyds executives will want to finalize a deal quickly, bankers familiar with the transaction said.