Affiliated Managers Group Inc. stock took a hit in the days after affiliate Third Avenue Management LLC announced it was liquidating its Focused Credit Fund.
Shares in the West Palm Beach, Fla., money manager fell 13.6%, to $144.01 at the close of market on Dec. 14, from $166.60 on Dec. 9.
By comparison, the S&P 500 fell 1.2% and the S&P 500 Financials index dropped 1.9% during the same period.
One industry observer called the stock drop an overreaction, with other sources saying the long-term impact of the fund's liquidation on AMG is likely to be miniscule.
After facing losses and client redemptions, Third Avenue management told investors in a letter on Dec. 9 that it was halting redemptions on its Focused Credit Fund and would be liquidating assets. The fund held $788.5 million in assets at the time the shutdown was announced, down from $3.5 billion in June 2014.
Then, on Dec. 14, Third Avenue said that CEO David M. Barse was leaving. Also on Dec. 14, the Massachusetts Securities Division sent out a subpoena to probe the closure and liquidation plan of the Focused Credit Fund.
Third Avenue's roughly $10 billion in AUM and earnings account for a tiny portion of AMG's total $593.8 billion in AUM and earnings — and its Focused Credit Fund accounted for even less, sources said.
AMG also has no legal exposure to its subsidiary.
“I don't think it's a particularly big deal for them,” said Robert Lee, a managing director and analyst at Keefe, Bruyette & Woods Inc. in New York. “Third Avenue's business accounts for 1% of AMG's assets and about 1% of their earnings. The fund amounted to 0.1% of AMG's earnings.”
Mr. Lee added that AMG's affiliates by design run independently with no operational or investment linkage.
“It's an independently operated business. I'm sure AMG will be involved; they're not just a passive bystander. That's just common sense. But they're certainly not dictating to Third Avenue how to run the money. At the end of the day, the affiliate has to run the business,” he said.
Domonkos L. Koltai, a partner and co-founder of investment bank PL Advisors, New York, speculated that this “is a reputational issue” for Third Avenue, but added: “I don't think it is much of an issue for AMG at all.”
“AMG has been focusing this year on building its own mutual fund business. Third Avenue is a pretty unique AMG affiliate in that it is almost all U.S. mutual funds – $8.5 billion out of $9.9 billion,” he said. “It is not a great fit with the AMG model, which is more suited to institutional firms where they can help with global distribution.”
Mr. Koltai noted that when AMG bought into Third Avenue in 2002, it managed almost 90% less than what it currently manages.
“What made sense for them then probably doesn't make that much sense today,” he added. “So I would not be surprised to see them sell it back to management.”
In the news release announcing Mr. Barse's resignation and Third Avenue's change in management, AMG's CEO Sean M. Healey offered support for the subsidiary, but also emphasized the parent's well-known hands-off business model: “We have the utmost confidence in the management committee and the entire firm, and look forward to continuing to work with (the firm's management committee) as they advance the business.”
AMG declined to comment beyond Mr. Healey's statement. Going forward, Third Avenue's management committee, which includes David L. Resnick, president and chief investment officer; Vincent Dugan, chief financial officer and chief operating officer; W. James Hall, general counsel and secretary; and Matthew Fine and Jason Wolf, portfolio managers, will lead the firm.
AMG's stock price closed at $153.75 on Dec. 18.