Short list seen for GE Asset Management bidders

General Electric Co. will have little trouble finding a buyer for its asset management business, sources said, despite potential complications that aren't usually found in money manager merger and acquisition deals.

The Stamford, Conn., company announced Sept. 10 it was looking for a buyer for its GE Asset Management unit. GEAM spokesman Chris Linehan declined to give a price range, but sources estimated the business could sell for about $500 million.

Possible bidders named by sources include Ameriprise Financial Inc., Invesco Ltd., Franklin Templeton Investments, Goldman Sachs Group Inc. and possibly even BlackRock Inc. or State Street Corp. Spokesmen at the firms declined Templeton Investments, Goldman Sachs Group Inc. and possibly even BlackRock Inc. or State Street Corp. Spokesmen at the firms declined comment.

And although GE has announced that it wants to keep the buyer universe to money managers, industry experts said private equity firms — including the Carlyle Group LP and KKR & Co. — might be interested in buying GEAM. A spokeswoman at Carlyle declined to comment while a spokeswoman for KKR did not respond to a request for comment.

Mr. Linehan said several firms have already expressed interest in GEAM, but would not name names.

“It's not a long list,” said Domonkos L. Koltai, a partner and co-founder of investment bank PL Advisors, New York. “No more than 10 firms could have the ability and desire for the proposed deal.”

However, any potential sale might be more complicated than it seems at first glance.

GEAM had $115 billion in total assets under management as of June 30, but about 85% was managed for GE benefit plans, and other affiliated GE assets, such as the Elfun Funds, a mutual fund family for GE employees, retirees and their family members.

Mr. Linehan wouldn't comment on any potential commitment from GE on maintaining a relationship with the money manager after a sale because that would be part of the negotiations. But retaining that relationship is something potential buyers will need to consider, in addition to the usual concerns of third-party client departures after a manager changes ownership.

Gary Harbin, executive secretary of the $17.9 billion Kentucky Teachers' Retirement System, Frankfort, said in a phone interview that the system's board intends to meet with GEAM — which manages an $800 million large-cap growth portfolio for the plan — and assess whether to stay with the manager.

“Every time there's a change in management there's a cause for concern,” said Mr. Harbin. “We'll make a decision after we complete our due diligence. If we stay with them, we'll monitor them very closely.”

That said, he added Kentucky Teachers officials are “very happy with our relationship with GEAM. They've done a great job.”

Culture also could prove an issue, as any potential buyer would have to integrate employees from a business where asset growth has been a lower priority than is the case with most asset managers, Mr. Koltai said.

The buyer is expected to acquire both GEAM's assets and team, with the exception of a small number of GEAM employees who will remain with GE to provide investment oversight of the company's primary benefit plans. GEAM has approximately 300 employees, about 130 of whom are investment professionals. CIO David Wiederecht and other key investment staffers would be among those moving to the new owner.

“It may be a tricky transaction to pull off,” Mr. Koltai added. “When most of the AUM is from just one client (GE), it's not a simple proposition, and merging GEAM into a for-profit business won't be without challenges.”

Another investment banker who asked not to be named, also noted the possible difficulties connected with the transaction.

“This is not a well-understood business, so most players are trying to figure out what the P&L (profit and loss statement) looks like and how much of its AUM is GE-related and how much is truly third-party,” he said. “And folks want to know investment track records to see if this can be turned into a real growth business.”

Edward Higham, a managing director at the New York-based investment bank Silver Lane Advisors LLC, said in an e-mail: “One of the differentiating factors for GEAM is its dual role as in-house manager for GE's retirement plan assets as well as for a sizable external client base.

“Ongoing continuity of the GE relationship post-transaction will be an important deal and valuation consideration for a potential buyer.”

An independent fiduciary will be appointed to review the transaction. Net sale proceeds from the transaction will be deposited into the GE Pension Trust.

GE registered GEAM as an investment adviser in 1988, following the path of other corporations, including Owens-Illinois Inc., American Airlines and General Motors Corp. (Owens-Illinois sold its asset management business, Harbor Capital Advisors, in 2001; AMR Corp., parent of American Airlines, agreed in 2008 to sell its money management unit, American Beacon Advisors; General Motors, whose General Motors Investment Management Corp. went through several iterations, withdrew from external management in 2010.)

Now, selling GEAM is part-and-parcel with the company shedding its other financial services businesses, including those that are part of its separate lending business, GE Capital.

In June, Canada Pension Plan Investment Board, Toronto, agreed to buy GE Capital's private-equity lending business, Antares Capital in a deal valued at $12 billion. Earlier, in April, GE announced the sale of the majority of its $26.5 billion real estate lending business to Blackstone Group and Wells Fargo.

In addition, in March, Varde Partners, KKR & Co. and Deutsche Bank entered a deal to buy GE Capital's Australia and New Zealand consumer-lending business for A$8.2 billion ($6.25 billion).

“The sale of GEAM is consistent with GE's strategy of exiting most financial services activities to focus on its industrial businesses, even though the asset management business is not balance sheet "intensive' like many other recent GE divestitures,” said Mr. Higham.

Brian K. Langenberg, principal and founder of analyst firm Langenberg & Co. LLC, Chicago, told P&I that this decision to sell GEAM not only makes sense for GE, but the timing also is right.

General Electric “plans to focus on their core businesses, so getting rid of these financial businesses has been an ongoing process,” Mr. Langenberg said. “I'd expect demand to be pretty good and would expect a good price. It won't sell at a discount.”

“Is it a good time to sell? I'd say yes. Capital markets have been supportive of financial properties transactions, so it makes sense to strike while the irons are hot,” he added.

Mr. Linehan said the firm expects to select a buyer in the first quarter of 2016.