CHARLOTTE, N.C. -- First Capital Group has made two acquisitions in less than a year, which leaders say indicate the group's serious designs on the institutional asset management business.
The latest purchase was Tattersall Advisory Group, the Richmond, Va.-based fixed-income manager. Terms were not disclosed. Tattersall has $5.5 billion in total assets under management, of which about $4.8 billion is institutional tax-exempt. Tattersall will keep its name and remain in Richmond.
"Our grand plan isn't to have one big amorphous investment shop," said David Francis, managing director and chief investment officer of First Capital. "I continue to run lean and mean and keep my energies where I can add the most value."
His place is in the center, he said, supporting the growing number of asset management teams with operational and financial help, occasionally tapping the strength of parent company First Union Corp.
Before joining First Union in 1994 as an equity investment manager, Mr. Francis managed institutional money at Federated Investment Counseling, Pittsburgh. When the First Capital Group was formed in fall of 1997 to pursue the institutional investment market, Mr. Francis took the lead. The group's original $16 billion has increased to $60 billion in institutional tax-exempt assets under management.
"The idea of buying Tattersall was entirely generated by First Capital," he said, and was not an idea of the parent company. Glen Insley, the head of First Capital's fixed-income operations, was well acquainted with Fred Tattersall, the firm's founder and majority owner.
"There was respect on both sides of the table and Glen has watched Fred grow over the years. They struck up a conversation of 'Wouldn't it be interesting?' and so we went to my boss and went to the top of the house and they supported us," Mr. Francis said.
Mr. Tattersall said he sold his 35-person firm in order to expand his business and survive the competition for newer products.
"One of the changes taking place in active fixed income is the movement toward more risk on the part of the client, which means 'core plus' has become the object of more of the searches," Mr. Tattersall.
But his firm had not moved into high-yield or emerging market debt, the methods for enhancing core bond return in opportunistic investing.
"I didn't think in the last four years or so that you were being well compensated for it, but I wish I would have put that product in back then. I would have if I thought our business wouldn't grow because so many searches were for this new product," Mr. Tattersall said.
"After the third-quarter (global economic) blowup, for the first time, in my opinion, people have an opportunity to get paid to take on the credit risk, and I feel it makes some sense now. But do you build it internally or piggyback? All the extra things this organization brought to the table were too good to pass up," Mr. Tattersall said.
Those extras include the emerging markets capability of the manager First Capital acquired last summer, the international fixed-income division of Analytic-TSA Global Asset Management Inc., Los Angeles. The division had $100 million in international assets under management, and now operates as First International Advisors Ltd. Analytic-TSA's U.S. operation is still owned by United Asset Management Corp., Boston; it recently changed its name to Analytic Investors Inc.
First Capital's domestic fixed-income managers also have a high-yield capability that Tattersall can use to expand into the latest bond investment methods. Tattersall also would like to move into the 401(k) market, a long-term plan of First Capital Group as well.
"This (sale) allows us to catch up and throws us into a great distribution system. Our challenge now is to execute and keep the family atmosphere we've had here. We will continue to stay in Richmond, by contract. We retain control over the investment process and personnel. Overall, I don't believe there will be a lot of change," Mr. Tattersall said.
Ten of 13 investment professionals at Tattersall Advisory were owners; they are believed to have contracts with First Capital that include incentives.
Tattersall Advisory was spun out about two years ago from Lowe, Brockenbrough & Tattersall Inc., a firm Mr. Tattersall helped form in 1983.
Purchasing Tattersall was not done necessarily to fill a product gap for First Capital, which already had a core bond group. What First Capital sought was Mr. Tattersall's well-defined process and his long-time reputation and expertise as an institutional, fixed-income manager.
Mr. Francis said, "Could we have built and developed all of these capabilities? Yes. But it would have taken a long time, been very expensive and created a lot of infrastructure. Here are some very talented teams with a good track record. Why not use them?"