LONDON - Queen Anne's Gate Asset Management Ltd., one of the United Kingdom's best-performing money managers, has been acquired by Jupiter Tyndall Group PLC for up to 10 million ($15.4 million).
Formerly the in-house manager for the U.K.'s water companies, Queen Anne's Gate will be merged into Jupiter Tyndall Merlin, the group's money management unit, to create a firm with more than 4 billion ($6.2 billion) in assets under management. The London-based managers ran roughly 2 million each going into the merger.
The transaction also is expected to establish a benchmark price for the sale of former in-house money management operations. The sale is especially significant in light of the upcoming privatization of CIN Management Ltd., the in-house manager for the 16 billion British Coal pension plans, which is expected near the end of the year.
Several industry experts viewed the purchase price as high, especially because Queen Anne's Gate is composed entirely of low-margin institutional accounts and is heavily dominated by a few clients. A central pension trust including four major water company plans plus a few smaller ones accounts for nearly half of Queen Anne's Gate 2 billion in assets under management.
Under the agreement, Jupiter Tyndall is paying 7.56 million in cash up front, and will pay up to 2.44 million in two years if most clients are retained. Thus, Jupiter Tyndall is paying 40 to 50 basis points for the assets it is picking up. Based on Queen Anne's Gate's pre-tax profits of 300,000 last year, Jupiter Tyndall is paying 25 to 33 times earnings.
"It was a fairly high price to pay but we're delighted at the news because it puts a marker down," said W. Brian Matthews, finance director, ESN Pension Management Group Ltd., London, which manages some 12 billion, primarily for U.K. electricity industry pension funds.
But Tony Cummings, an investment analyst at S.G. Warburg & Co., London, said the price was reasonable.
The acquisition will double Jupiter Tyndall's assets under management, enabling it to garner the attention of pension fund consultants and win entry into manager searches, he said.
In addition, Mr. Cummings believes the merger will enable Jupiter Tyndall to manage more higher-fee investment trust and possibly unit trust business. Jupiter Tyndall has a roughly even split of assets between institutional and retail customers.
John Duffield, Jupiter Tyndall's chairman, said he knows of no other money management company that has changed hands on a lower basis, based on assets under management.
Jupiter Tyndall has been building its money management operations. In late 1992, it hired Leonard Licht as chief investment officer and deputy chairman from Mercury Asset Management Group PLC, where he had been vice chairman and one of the firm's star portfolio managers. Jupiter lately has been winning specialized accounts, including active U.K. equity mandates from NCR Corp. and Johnson & Johnson's U.K. pension funds.
In 1993, Jupiter Tyndall earned 6.7 million in operating profits from money management activities, based on revenue of 13 million. Its banking operations, which last year accounted for another 3.2 million in profits on 6 million in revenue, were sold in June.
The stock market reacted favorably to the purchase of Queen Anne's Gate. Jupiter Tyndall's stock has risen 43 pence to 330 pence since the acquisition was announced July 21.
Mr. Duffield said the acquisition enables Jupiter Tyndall to obtain an excellent money management team and its track record. Queen Anne's Gate was the third-best performing U.K. balanced fund manager last year, returning 32.9% compared with 30.1% for the WM Co. weighted average and 29.1% for the median manager.
For the three- and five-year periods ended Dec. 31, Queen Anne's Gate produced compound-annualized returns of 24.5% and 18.1%, respectively, beating the WM weighted average by 180 basis points and 150 basis points a year, respectively.
One issue the combined firm will have to tackle is meshing their respective investment styles. While Queen Anne's Gate is a top-down manager - nearly all of its added value for the three-year period came from asset allocation and policy decisions - Jupiter Tyndall is known as a stock picker that takes greater investment risks. Executives at both firms said they hope their styles will complement each other.
Executives also believe the merger will enable them to compete better for new business. In-house money managers are viewed skeptically in the United Kingdom, and none has had much success in winning outside business.
CIN has three outside clients for its venture capital unit; other firms, including ESN and ICI Investment Management Ltd., both in London, have had limited success in attracting external clients.
Despite having stellar track records, "there is uncertainty or suspicion that running an actual business is very different," said Dick Withers Green, an executive director at Queen Anne's Gate, five-sixths of whose assets come from water company pension funds.
The merger also should enable the combined firm, which will go under the Jupiter Tyndall Merlin name, to develop new products, particularly in the emerging markets area, Mr. Duffield said. Queen Anne's Gate was one of the first U.K. managers to invest in Vietnamese stocks, while Jupiter Tyndall has expertise in the Asian tiger economies, he said.
The expanded array of products also might help Jupiter Tyndall to market additional services to existing clients. Kevin Price, a trustee of the 900 million Central Trust, all of whose assets are run by Queen Anne's Gate, said trustees had been considering diversifying into U.K. small-capitalization stocks - a product that is offered by Jupiter Tyndall but not by Queen Anne's Gate.
If the trustees use the Jupiter Tyndall product, the trust can stay with the one manager, he explained. The trust includes the commingled pension assets of the North West Water Group PLC, Warrington, England; Northumbrian Water Group PLC, Gosforth, England; Welsh Water PLC, Cardiff, Wales; Yorkshire Water PLC, Bradford, England; and a few smaller water-related companies.
Overall, clients welcomed the news of the merger. "We're quite happy for Jupiter Tyndall to take over Queen Anne's Gate," said Graham Nicholson, secretary to the 145 million Southern Water PLC pension fund, Worthing, England.
The fund is entirely managed by Queen Anne's Gate.
