2013 | Investment Management Industry Review Friends of Berkshire:

In 2013, we will celebrate 30 years as a global boutique investment bank providing merger and acquisition advisory services in the investment management and securities industries. As we embark on our 30th year, we reflect on our achievements to date and look ahead to the future of our business.

Berkshire Capital was launched from the basic belief that there was a role for a focused investment banking firm to assist clients in finding the right partners and structuring lasting relationships in the investment management and securities industries. What was primarily a U.S.-based industry has grown and diversified into a global industry, one that delivers infinitely more products and services today than 30 years ago. While the industry and its players continue to evolve, the importance of the people and the cultures within these firms has been a point of consistency from the start.

As an independent and employee-owned investment bank, we are proud that our partners have been with us for an average of 13 years. With this longevity, we have maintained continuity in our relationships with our clients and the broader financial services industry, and we have become widely known experts in our field. Since inception, Berkshire Capital has advised on more than 275 transactions and over 260 valuations. Headquartered in New York, we have expanded our domestic and global reach with partners located in Philadelphia, Denver, London, Frankfurt and Sydney.

Looking forward, we are committed to continue delivering unique ideas, unbiased advice and creative solutions, anticipating our clients’ needs and exceeding their expectations. We remain dedicated to our clients and believe that our success as a firm is determined by the success and durability of the partnerships we help them create.

We hope you will find this industry review to be informative and helpful as you consider your current situation. We look forward to the opportunity to work with you when the time and circumstances warrant. We would like to express our deepest gratitude to all of our clients and friends who have supported us in this journey and look forward to the next 30 years.

Warm regards,

H. Bruce McEver R. Bruce Cameron would announce special dividends before year-end, or four The Return of times the level that prevails during more placid times. the Coupon Clipper Bonds, another favored asset class since the start of the financial crisis, continued to roll along, with investors having placed $1 trillion into investment-grade bond onsider the dividend. For decades, it was the time- funds since 2008. Corporations across the balance sheet honored means by which corporations delivered spectrum took full advantage of both the demand and Cvalue to shareholders, in the process providing a low rates by issuing record levels of debt. By December, simple mathematical model on which to gauge a portion investment-grade debt issuance in the U.S. in 2012 of return on investment. Institutions, along with moms had topped $1 trillion, while the combination of new and dads, grandparents, and aunts and uncles were in bonds and leveraged loans for below-investment-grade rapture of the quarterly payout. firms totaled $854 billion. And whether investors were buying the best bonds or the “junk,” both delivered solid Then the roaring ’80s came along, followed by the dot-com ’90s, and the humble dividend fell into disfavor — a security blanket for veritable squares while the pros Clipping Bigger Coupons chased growth and stock appreciation. S&P 500 Dividend Payout But history does move in cycles, and the 2012 1Q 2Q 3Q spawned a return to basics. Today, the Total Payout ($B) $67.4 $69.8 $73.5 coupon-clippingdot-com crash and ways financial of those crisis earlier have Per Share (vs. 2011) $27.70 (+15%) $28.40 (+11%) $29.92 (+16%) generations are back in vogue as investors Per share, Financial Services Sector no-yield world. Referring to the newfound Increase 2012 vs. 2011 +33% +28% +30% appreciationattempt to manage for dividends, risk and Daniel find yield Peris, in aco- Yield 2.1% 2.0% 2.1% manager of the Federated Strategic Value Dividend fund, told Fortune: “Some ask if Source: FactSet that’s a new paradigm. Well, it’s not a new paradigm. It’s actually a very old paradigm. It’s the original paradigm.” For investors like Peris, who opined early in 2012, the The Slowdown Continues news kept getting better as the year went on, as publicly GDP Growth traded companies continued to enhance quarterly payouts. 2011 2012* 2013* and instituted a dividend in August. In the second quarter U.S. 1.8% 2.2% 2.1% ofEven 2012, cash-rich, Standard debt-free & Poor’s holdout 500 companies Apple finally in aggregate caved in paid out $70 billion in dividends, up 11% over the same Euro Area 1.4 (0.4) 0.2 U.K. 0.8 (0.4) 1.1 information and analytics provider FactSet. The gap in the Japan (0.8) 2.2 1.2 price-earningsperiod in 2011 ratioon a per-shareof dividend basis, to non-dividend according to stocks financial was a mere 216 basis points, compared with a 20-year monthly China 9.2 7.8 8.2 median above 1,300 basis points. India 6.8 4.9 6.0 Brazil 2.7 1.5 4.0 But the re-election of President Barack Obama opened the dividend spigot wider still, as corporations and their Global 3.8 3.3 3.6 World Trade Volume 5.8 3.2 4.5 (growth in goods & services) ofinvestors companies assessed quickly the announced potential for they a significant would either jump pay in the year-end15% flat taxspecial rate dividendson dividends or move in effect up sincethe date 2003. of planned Scores * Projected 2013 payouts. A number of companies, including Costco Source: International Monetary Fund (October 2012) Wholesale, capitalized on low borrowing rates to help fund those special dividends. Legg Mason moved its quarterly dividend payment date back a month to December 2012. returns. The hedge fund industry mirrored the trend, Franklin Resources announced a special dividend a week as assets in fixed income-based relative value arbitrage after the election, equivalent to a 2.3% return based on the strategies reached parity with equity products for the first time, according to third-quarter data from Hedge Fund Research. day’s share price. By late November, financial information firm Markit had projected that more than 120 companies Investment Management Industry Review | 2013 1 up 2.7% on an annualized basis in the third quarter. Slower Procession to the Altar Andoffice though in 2009, that while represented recently releasedthe 13th datastraight showed quarter GDP Mergers & Acquisitions Worldwide of economic growth, the recovery remains tepid and readings on the health of consumer spending contradictory. NUMBER of Announced Deals The inability of Washington to quickly cut a deal on the

2012 (vs. 2011) remained a post-election drag on sentiment, too. On the Worldwide 37,923 (-9.9%) positivespending side, and low tax issuesinterest embodied rates were in helpingthe “fiscal to revivecliff” the housing market, with median prices rising for the eighth U.S. 8,119 (- 5.1%) straight month in October and sales up 11% that month. Europe 13,382 (- 16.6%) The euro zone, the world’s crisis epicenter, dragged through Asia-Pacific (ex-Japan) 9,384 (- 8.1%) third quarters brought negative growth in the area, as both Value of Announced Deals ($ billions) another difficult year without imploding. The second and 2012 (vs. 2011) European Central Bank (ECB) projecting negative 0.5% growththe German in the and euro French zone economiesfor the full weakened,year. Unemployment with the Worldwide $2,588 (+ 1.7%) U.S. $935 (- 4.6%) Europe $785 (+ 10.3%) climbed to a record 11.7%, with the Greek and Spanish numbers at depression levels of 25%. Greece was kept Asia-Pacific (ex-Japan) $438 (- 1.4%) manyafloat observersfor another view year the with plan euro as zoneunrealistic loans onas parta number of a oflong-term fronts, including debt reduction assumptions plan finalized about economic in November. growth. But of which (worldwide value, 2012) For the euro zone as a whole, the ECB cut its 2013 forecast Cross Border 37% inSince December 2008, Greece’s to negative real 0.3% GDP hadgrowth. declined by around 20%. Emerging Markets 28% (by seller location) Financial Services 13% voluntarilyUnder the Conservative opted for the government pain of near-term of Prime governmental Minister Private Equity 12% austerityDavid Cameron, in the service in power of longer-termsince May 2010, prosperity. the U.K. The has problem for the Conservatives and their Liberal Democratic Source: Thomson Reuters short, leading the government in December to extend thatcoalition austerity partner: pitch deficit for another reduction year targets to 2017-18. are falling The investors, Pimco andindependent just a 1.2% Office gain for in Budget2013, down Responsibility from an earlier predicted 2% provocativelyMeanwhile, one declared of the biggest last summer and most that influential the “cult of bond equity projection.negative economic In December, growth Standard of 0.1% & for Poor’s the U.K. joined in 2012, other is dying.” The culprit, chief in investment his view: slower officer economic Bill Gross, growth “due to deleveraging in the New Normal economy” that is ratingsFrom the agencies left, French in placing Socialist the President U.K. on a Francois negative Hollande watch. hook either, arguing that with long Treasuries yielding just began rattling the cages of that nation’s business community 2.5%,taking “it the is shine even moreoff stocks. of a stretch Gross didn’t to assume let bonds that long-off the term bonds — and the bond market — will replicate the proposing big tax hikes and becoming embroiled in a dispute performance of decades past.” Some major U.S. corporate and its wealthy citizens soon after his election last May by bond investors, unnerved by the combination of negligible French plant, which Hollande threatened to nationalize. interest rates on investment-grade bonds and high bond with global steelmaker ArcelorMittal over the closing of its prices, are also warning about the potential for future in the crosshairs of Socialists regarding his patriotism after heEven moved popular to Belgium French actorin an Gerardeffort to Depardieu escape high found taxes. himself The mid-December, the Federal Reserve reiterated its intent French economy, which has long suffered from a lack of portfolio losses. At its final policy meeting of the year in competitiveness, is expected to register marginal growth in 2013, following a similar performance in 2012 (0.2% likelyto keep to short-term raise them. rates And whilenear zero the Fedwhile doesn’t for the anticipate first time growth). unemploymentciting a specific droppingunemployment that low target until of 2015, 6.5% the before it is None of these domestic trends bode well for the world’s to track — and fret about — as they assess risk. announcement did add a defined metric for bond investors ratcheted down the economic growth forecasts it made in By the time of the Fed announcement, U.S. unemployment July,economy. projecting By October, global thegains International of 3.3% in 2012 Monetary and 3.6% Fund in had had dropped to its lowest level (7.7%) since Obama took

2 2013. For 2013, the IMF projects 1.5% growth in advanced economies and 5.6% in emerging market and developing economies. World trade volume is projected to grow by 4.5% this Equity Shy year, a gain from 3.2% in 2012 but off the U.S. Mutual Funds ($ billions)

Nov. 2012 Dec. 2011 Jan.-Nov. 2012 marketspace existing worldwide prior to delivered the financial a surprisingly crisis. Inflows O( utflows) strongGiven the showing, pall over offering the global up double-digit economy, stock Stock Funds $5,852 $5,215 ($122) gains for 2012 in most markets, including Hybrid $980 $837 $46 (up 33% for the year). The three major U.S. Taxable Bond $2,832 $2,387 $244 indicesthe Athens also Stock delivered Exchange strong General returns. Index Municipal Bond $590 $497 $53 As a group, publicly traded asset Money Market $2,617 $2,691 ($77) managers outpaced the market, with the asset managers component in the U.S. ETFs ($ billions)

Nov. 2012 nov. 2011 assetDow Jones managers U.S. Total recorded Market net Industry inflows of Domestic Equity $747 $615 closeGroup to up $600 25% billion in 2012. through Worldwide, the third Global/International Equity $304 $252 quarter, excluding money market funds, Hybrid $606 $376 with the U.S. accounting for 58% of that total, according to Lipper. In 2011, global Bond $244 $178 inflows were $84 billion. In the U.S., Source: Investment Company Institute gains and inflows, the profit picturewhile AUM was was mixed. helped along by market Take Franklin Resources, for Investment Management Transactions example. It saw a 14% spike in

September to $750 billion, but 2008 2009 2010 2011 2012 theAUM gains in the were fiscal primarily year through through Majority Equity 149 115 115 119 127 market appreciation as net new Minority Equity 29 5 15 15 29 Management Buyout 21 15 13 10 13 income declined 5% while investmentinflows were management negative. Operating fees Total 199 135 143 144 169 also slipped 4%. Nevertheless, Total Transaction Value ($B) $16.3 $31.7 $21.2 $10.3 $12.6 the stock was up 31% in the Total AUM Changing Hands ($B) $1,148 $3,300 $1,134 $756 $1,133 nine months through end of Source: Berkshire Capital Securities LLC quarter through September, Legg September. In its second fiscal billion over the year-earlier quarter, but operating revenues Mason’s AUM rose 6% to $651 ininvolving evidence the last transfer year. Of of particular $1.1 trillion importance in AUM. Several is the deal-trends makingthat have in become emerging apparent markets, since including the financial acquisitions crisis wereby 3%and inincome the nine declined, months with through steady September, net outflows manages in both more equity players based in those markets. BTG Pactual, one of Latin and fixed income assets. The company, whose stockAffiliated rose just America’s leading investment banks and asset managers, Managers Group, a proxy for a range of asset managers than twice as much in fixed income as in equities. is a good example. Run by billionaire Andre Esteves and billion between September 2011 and 2012 and a 23% gain in and investment styles, showed a 36% gain in AUM to $416 Celfin Capital and Colombia’s Bolsa y Renta that extended itsbased presence in Brazil, in several BTG made Latin acquisitions American markets. last year “Ourof Chile’s vision threeearnings quarters. per share, including $25 billion in net inflows in the first three quarters of 2012. The stock was up 28% in the first is that the world is flat,” Esteves is reported to have said throughfollowing London the Celfin or Newdeal. York.” “There is no need any more for managersIn 2012, all in three a bid of to those expand firms those made capabilities. acquisitions, They with were fund flows coming from China to Latin America to pass Qatar Holding, part of sovereign wealth fund Qatar joinedFranklin by Resources scores of others and Legg in what Mason was investing an interesting in alternative and Investment Authority, made two deals, including an active year for deal-makers. In total, there were 169 asset institutional asset management joint venture with Credit management transactions valued at $12.6 billion and

Investment Management Industry Review | 2013 3 mandatory pension fund manager, AFP Cuprum. Dai-Ichi Life Insurance Co. announced it will acquire a minority Who’s Selling stake in Janus Capital Group as part of a larger “strategic cooperation agreement” that includes an additional $2 Number of Transactions by Sector as % of Total billion investment. 3% 5% The private equity industry, sitting on plenty of dry powder 8% 6% and enjoying attractive borrowing costs, was involved in 10% 14% numerous deals of note, including in the consolidating 40% 40% credit marketplace, where Carlyle Group acquisition since 2010. Thomas H. Lee Partners joined Carlyle by acquiring the alternative credit unitmade of its McDonnell fifth 39% 35% Investment Management. Two European private equity giants, 3i Group and CVC Capital Partners, also made 2011 2012 credit-related deals. Carlyle cut a second deal to expand its hedge fund capabilities by assuming a majority stake in New York commodities specialist Vermillion Asset Value of Transactions by Sector as % of Total Management, while KKR & Co. extended its product line 2% with the acquisition of fund of hedge funds manager Prisma 5% 4% 8% 7% Capital Partners. Friedman, Fleischer & Lowe purchased a majority stake in Strategic Investment Group, a fast-growing 11% Lee Equity Partners paid $265 million for Edelman Financial 56% 29% 58% 20% Groupinvestment outsourcing firm for institutions, while , a well-known name in the mass affluent market. investment by pension funds in asset managers who 2011 2012 manageAnother theirsmall money but defined — was trend also —on involving display. This direct included the $100 million investment California Public Employees’ Retirement System made in Bentall Kennedy, a real Money Management Hedge Fund / Hedge Fund of Funds Teacher Wealth Management Real Estate Retirement System of Texas invested in hedge fund giant Private Equity / Other Bridgewaterestate advisory Associates firm, and the. $250 million Source: Berkshire Capital Securities LLC * * * As we’ve duly noted above, the asset management industry Suisse continued its post-crisis metamorphosis last year. Of markets.” India and China drew their share of global focused on the Middle East and other “frontier particular importance, that incorporates the shift from the presumed risk of equities among retail investors, as L&T Finance, bought the Indian mutual fund business ofbuyers, Fidelity including Worldwide Qatar InvestmentsHolding, but one Indian firm, well as institutions. For active fixed income managers asset management deals in Asia’s two. Japanesegiants. In financialthe largest, managersenjoying a mustwave alsoof inflows, keep an that’s eye in been the goodrear-view news. mirror But, like Nipponfirms, facing Life anInsurance aging and Co. flat paid market $290 at million home, forcut a several minority ontheir fast-growing brethren on exchanged the equity traded side, traditional funds favored fixed for income their stake in India’s second-largest asset manager, Reliance low fees and liquidity. The largest bond fund manager, Capital Asset Management, building off an investment Pimco, introduced an ETF version of its mammoth Total it already held in Reliance Group’s insurance arm. Two Return fund that became by far the best-selling ETF last Royal Bank of Canada and Scotiabank, were also active in emerging markets. of Canada’s big five banks, BlackRocks, Charles Schwabs and Vanguards of the world battleyear, amassing for share, some ETF fees$4 billion are heading in AUM. lower Moreover, still. as the dollar deal, Julius Baer accounted for one of the more The industry’s makeover has also included divestitures notableIn a year ones, that lackedpaying thearound drama $900 of a million high-profile for Merrill billion- and reorganizations, particularly among banks and Lynch’s international wealth management unit (excluding Japan) as part of its aggressive emerging markets strategy. The Swiss wealth manager, which with the addition of byother Bank financial of America services) of firms its international impacted by wealth the financial unit to crisis. We highlighted the sale by Merrill Lynch (owned also announced a “strategic collaboration agreement” Japanese wealth management joint venture). Societe withMerrill’s Bank business of China has. Principal 50% of its Financial AUM in emerging did top the markets, GeneraleJulius Baer (soon after, Merrill divested its interest in a billion-dollar mark in adding to its Latin American pension TCW (acquired by Carlyle), as well business with the acquisition of Chile’s fourth-largest joined Merrill in divesting its majority share in fixed income specialist 4 the most prominent example last year. Founder Donald Who’s Buying transfersYacktman, of who ownership will continue today, toat runa time the when firm, toldeveryone clients is 2008 2009 2010 2011 2012 the link with AMG “allows us to fully resolve generational Money Management 48 34 37 34 36 position, four years after the second market crash in less in excellent health.” While Yacktman’s firm enjoys a strong Bank 34 14 11 15 26 Financial 28 16 22 26 24 than a decade many firms are also seeking outright buyers Wealth Manager 29 23 19 28 23 or partners because of the unyielding financial pressures. Insurance Company 7 2 5 2 13 thirdAccording of the to performers a report from in the McKinsey, U.S. generating the industry margins is of MBO 21 15 13 10 13 46%cleaving in 2011 into higherversus andan industry lower margin average firms, of 28%. with Asset the top Securities Firm 4 11 17 9 9 growth, it says, has also come almost exclusively from

Real Estate Manager 2 5 6 4 5 the industry more vulnerable to volatility.” Additionally, Trust Company 7 8 5 3 2 market appreciation as opposed to fund flows, “making Other 19 7 8 13 18 marketsthe industry remains is losing well share below of pre-crisis the global highs, financial buffeted asset by Total 199 135 143 144 169 lowerpie. “Finally,” revenues McKinsey and higher writes, costs.” “profitability in developed Source: Berkshire Capital Securities LLC

As asset managers and financial services firms adapt to as several other asset managers. As the year wrapped up, theand buy/sell attempt equationto profit from in what the remains changes anand extraordinarily challenges they Belgian-French bank Dexia announced the $500 million dynamicface, we look and forwardfascinating to servingindustry. the firms on both sides of GCS Capital. Rabobank of the Netherlands is insale the of process its asset of management selling its sprawling business asset to Hong management Kong private business,equity firm Robeco Group Money Management expected divestiture that ,didn’t with the occur, finalists of Deutsche (if they prevail)Bank’s globalfrom Asia-Pacific. asset management But last business.year was alsoAfter notable would-be for buyerone Guggenheim Partners ith a wary eye on developments in Europe, as the business off the block and announced a plan to drive results by merging its asset demurred, management the German and wealth bank tookunits. Winvestors continued to play things safe last year, In similar fashion, UniCredit opted in 2011 to keep its even as thewell various as the equity presidential indices electionserved up and double-digit “fiscal cliff,” Pioneer subsidiary and refocus on growing the business. returns. Retail investors have been particularly risk-averse, with numerous articles noting the lingering trauma from We’ve been focused for many years in these reviews on activity in emerging markets, but in recent years we’ve seen on individuals to the stock market crash of 1929. In an interviewthe financial with crisis the andWall some Street observers Journal in likening October, its Steven impact Leuthold of Leuthold Group summed it up this way: “I the emphasis begin to shift as firms based in those markets think we’ve lost another generation.” take the lead on acquisitions, with the GCS-Dexia deal the newmost high recent last example. year for Chineseoverall U.S. firms, acquisitions which are by likely spending to take Indeed, Franklin Templeton Investments surveys moretheir placethan $10among billion. the mostThis includedsignificant the such $4.2 buyers, billion set a between 2010 and 2012 show that between 48% and 66% purchase of 80% of American International Group’s of respondents continued to perceive equity markets as aircraft leasing business by a consortium led by Hong depressed even as they turned up. That grim assessment New China Trust Co. Although China’s banks have been more cautious in pursuing deals, one of the nation’s which by the end of last summer had suffered 16 straight bigKong’s four, China Construction Bank, has indicated an has been borne out in U.S. equity mutual fund flows, interest in spending up to $16 billion on a European bank. Investment Company Institute began collecting that data months of outflows — the longest such streak since the than doubled since 2008 to $2.1 trillion. Bond guru Jeffrey the retirement of American baby boomers, another widely in 1984. Meanwhile,DoubleLine assets in U.S. Capital bond Total funds Return have more Bond anticipatedMuch as in the and larger accelerating society trendthat is we coming see is tothe grips founders with Fund attract more money ($11.5 billion) than any other mutualGundlach fund saw in his the year through last June, according to of asset management firms preparing for a changing of valuethe guard investor by selling Yacktman businesses Asset in Management whole or part. was Affiliated perhaps Morningstar.But risk-aversion isn’t limited to individuals, who generally Managers Group’s acquisition of a majority stake in noted lag behind the “smart money” when markets turn. In the

Investment Management Industry Review | 2013 5 latest Pension Funding Study from consulting and actuarial York Life’s mutual fund distribution arm. Cornerstone CEO Andrew Wyatt said the partnership with the insurer enables his company to maintain its “investment and management firm Milliman covering the year 2011, U.S. corporate ofpension the study. funds That had 41% a higher to 38% proportion divide in of favor assets of “safety”in fixed breadth and depth in distribution, marketing and service.” income than equities for the first time in the 12-year history philosophies” while “benefiting from New York Life’s global New York Life also acquired a fast- growing 5-year-old long-short equity Money Management Transactions fund, Marketfield Fund, managed by Marketfield Asset Management.

2008 2009 2010 2011 2012 The fund was rebranded as the MainStay Marketfield Fund and will Number of Transactions 77 65 54 58 67 Combined Value ($B) $8.7 $25.1 $5.1 $5.8 $7.3 remains privately held. The fund saw Total Seller AUM ($B) $683 $3,011 $357 $450 $762 be subadvised by Marketfield, which some $3 billion at the time of the deal, Average Deal Size ($M) $113 $386 $95 $100 $109 dueits AUM to both more performance than triple lastand yearexpanded to Average Seller AUM ($B) $8.9 $46.3 $6.6 $7.8 $11.4

Source: Berkshire Capital Securities LLC distribution. Marketfield president and theportfolio stage” manager where it Michaelneeded Aronsteinto build “a toldreal marketingMFWire.com and the support company and had distribution “reached compares with a 60% to 29% spread favoring equities in structure.” In a third deal, New York Life alternatives 2006 — a stunning reversal. The U.S. isn’t alone. According boutique Private Advisors acquired a secondary private to the UBS Pension Fund Indicators report, pension funds Cuyahoga Capital Partners (see Hedge Funds/Private Equity). In addition, New York Life sold equityits pension fund fund of funds specialist firm, McMorgan & Co. Protectionin the U.K. haveFund the delivers lowest a percentagesimilar story, of showing assets in just equities 41% billion) to management. (AUM: $4.6 of(43%) assets since in equities 1974. The — 20U.K. percentage Pensions Regulator points below and the Pension level Goldman Sachs had its eye on the retirement market in 2006. Bonds account for 40% of holdings, up 12 points in acquiring stable value manager Dwight Asset over the same period. Management of Vermont. Dwight manages and advises As asset managers adjust their business models to $42 billion in such assets, or around 8% of the growing account for changing attitudes and demographic trends — $540 billion market. Stable-value funds offer higher including the more generalized retreat from risk posed by interest rates than money market funds by investing in the pending retirements of baby boomers — the money intermediate bonds that are in turn insured against losses. management sector drew a number of major players on Some observers believe the insurance provision could the buy-side last year, primarily pursuing tack-on deals. prove a check on growth, however, as underwriters quit the business. In discussing the deal with the Financial Times post-crisisOn the sell-side, environment, the transactions as well as involved owners a preparing mix of firms for generationalseeking the scale management required tochanges. compete As in was a less the profitablecase in “moving, Bill their McDermott, assets into head more of Goldman’sconservative institutional options” as wealth management, two of the biggest deals involved cross theydefined prepare contribution for retirement, business, adding: pointed “We to wantbaby toboomers be a border buyers and sellers: Dai-ichi Life Insurance Co.’s meaningful player in this part of the market.” minority stake in Janus Capital Group and Carlyle Group’s Old purchase of Societe Generale’s U.S. unit, TCW (see Cross Mutual Asset Management, which has been restructuring Border), the latter of which was another in the lengthy list of Goldman concluded the deal with Dwight parent post-crisis distress sales. One of the major U.S. mutual life insurers, New York Life, was in a bid to improve profitability. As part of that initiative among the most active deal-makers last year, adding stakes in whichlast year, was OMAM Analytic also Investors sold five affiliates, an equity to andmanagement alternative two companies, adopting a mutual fund in a third transaction, with combined AUM of nearly $12 billion, the largest of and divesting one business. In an institutional deal, asset management subsidiary New York Life Investments bought investor with $6 billion in AUM. The various restructuring- a minority position in Cornerstone Capital Management related deals in 2011 and 2012 have left OMAM with nine saiddiverse the affiliates transactions — half “complete the number the transition” it had at the of end its of business2010 — and and some enable $220 it to billion “focus in our AUM. capital The and company distribution Keystone(AUM: $2.2 Large billion), Cap a 20-year-oldGrowth Fund large-cap will be wrappedspecialist into based thein Minneapolis. MainStay Investments As part of the funds transaction, family, with Cornerstone’s Cornerstone pursuing initiatives most highly aligned with our overall resources on our largest affiliates and those that are London’s Old Mutual plc. acting as subadvisor. MainStay (AUM: $64 billion) is New strategy.” OMAM is the U.S. asset management arm of 6 In the largest deal in its 23-year history, Hennessy Advisors Trustmark Corp. The majority of the Trustmark billion in assets from 10 funds managed by FBR Fund assetsinvolving were $900 in money million market from Mississippi funds, with financial some $300 services Advisersof California, a subsidiary more than of tripled Virginia-based its AUM by investment acquiring $1.9bank firm FBR & Co. Three of the funds will be wrapped into similar for Trustmark National Bank, said its fund clients will Hennessy funds, with the rest million in fixed income and equity. Trustmark, the parent rebranded under the Hennessy experience. Federated, with $265 name. Neil Hennessy, chairman billionbenefit in from money Federated’s market funds, scale and and CEO, said the transaction has seen its market share climb “demonstrates our continued The structured products from 7% to 9.5% since 2007. commitment to actively pursue Federated has indicated it will opportunities to grow our market continued the continue to seek money market business, especially in this slower- fund acquisitions. growing economy.” Publicly consolidation that has been traded Hennessy has made seven Fifth Third divested other fund deals since 2000, all involving businesses last year as part of an funds. taking place since the financial effort to reorganize around an open-architecture model while One of the largest and most crisis, recording more than maintaining a “more concentrated menu” of institutional products. In year saw Affiliated Managers a half-dozen deals amid an a management buyout, the bank Groupsignificant buy mutual a majority fund of deals last sold $2 billion of institutional Yacktman Asset Management improving marketplace for assets run by its growth and value large-cap value investor. Cleveland. Asset management Yacktman,(AUM: $17 whosebillion), founder a prominent Donald such investments. investorequity teams Rosemont in Minneapolis Investment and Yacktman serves as president Partners supported the buyout by the new entity, Foundry said the partnership with Partners, which said it planned and co-chief investment officer, to enter into a “cooperative sales generational transfers of ownership today, at a time when and service agreement” with Fifth Third. In a second deal, everyoneAMG “allows is in us excellent to fully resolvehealth,” while offering the resources Touchstone Advisors of a “leading global asset management company.” As part mutual funds from Fifth Third. A unit of insurer Western of the deal, Yacktman’s co-portfolio managers signed 10- & Southern Financial acquiredGroup, Touchstone 16 equity and has fixedestablished income year employment agreements. In its semi-annual report a niche offering retail investors access to institutional to shareholders, the company said the “ability to retain managers through subadvised funds. Cincinnati-based full investment autonomy and control over the day-to-day Touchstone said the deal also provides access to Fifth operations of our business” was a “critical element” of the Third’s “premier distribution system.” transaction. In a bid to capitalize on investor demand for dividends, Friedman, Fleischer & Lowe acquire a majority of Strategic Charles Schwab paid $85 million in cash with potential InvestmentOne of the largest Group U.S., an deals established by AUM investment saw private outsourcing equity firm performance-based future contingency payments to acquire ThomasPartners level in 2007. In providing the recapitalization, Friedman acquiredfirm for institutions shares held that by amanages private investment $29 billion group.— twice Strategic the (AUM: $2.3 billion). The Massachusetts- incomebased firm streams.” constructs The twogrowth-oriented companies have separately had a relationship managed with colleagues from the World Bank pension fund in 1987, sinceaccounts 2001, designed with half to ofgenerate ThomasPartners’ “significant assets current held dividend toldCEO PensionsHilda Ochoa-Brillembourg, & Investments the deal who will established “help further the firm the in custody on Schwab’s Advisor Services platform. The transition of ownership between the founding partners company’s portfolios will be offered as part of that platform, and the transitioning team.” The investment outsourcing which has $124 billion in assets. industry has been growing rapidly in recent years, with corporate pensions joining the more traditional clients In a year in which the money market industry dodged the drawn from the endowment and foundation industries. tougher regulatory rules being considered by the Security and Exchange Commission, one of the industry’s leading average annual asset growth of 14% through 2016, to $500 players, Federated Investors, cut two deals to enhance that Casey, Quirk & Associates figures the industry will generate business. (A month after the SEC’s August decision to pass “committing ample resources to achieve best practices in on new rules, the Dodd-Frank-inspired Financial Stability investments,billion. The winners, risk management, the consulting distribution, firm opines, and will marketing.” be those Oversight Council began its own regulatory review.) In the larger deal, Federated acquired $5 billion in assets from Fifth The structured products market continued the Third Bancorp of Cincinnati, with the second transaction

Investment Management Industry Review | 2013 consolidation that has been taking place since the financial 7 crisis, recording more than billion in CLOs from Aladdin a half-dozen deals amid an Capital Holdings of Connecticut. improving marketplace for such Canadian banks, which avoided Sound Harbor was founded investments. For example, in in 2009 by two partners who helped build the alternative new issues of collateralized loan the excesses of the credit investment businesses of Carlyle obligationsthe first 10 months(CLOs) in of the 2012, U.S. and BlackRock. The CLOs will reached $35 billion — more than bubble and emerged in an continue to be managed by the double the total for the three same Aladdin team. Aladdin, a previous years. At the height acquisitive mood, continued to of the market in 2006-2007, a manager with a global clientele, total of $170 billion in CLOs was extend their global footprint, maintainsstructured $5.3 fixed billion income in assetseven issued in the U.S. Investors last collateralized debt obligations year were drawn by both yield with Bank of Montreal, (CDOs). Aladdin founder and majority shareholder Amin safety of the securities. Aladin said the divested funds and increasing confidence in the Royal Bank of Canada Carlyle Group, one of the leading Harbor’s reputation, capital and such consolidators, made its and Scotiabank cutting riskwill “benefitmanagement from expertise”Sound while furthering his company’s adding $2.8 billion of European international deals. “strategic objectives.” managementfifth CLO acquisition contracts since to the 2010, $13 billion of U.S. securities it Carlyle was joined on the buy- already managed. The seller, side by a second private equity Dallas-based alternatives Thomas H. Lee Partners, investor Highland Capital Management, retained its U.S. which acquired McDonnell Investment Management’s alternative credit unit. THLfirm, said the deal, involving the deal demonstrates its “commitment to the European $2.5 billion in assets and done through its THL Credit CLO assets. Carlyle, publicly traded since last May, said Advisors holding, was a logical addition to its direct- leveraged loan market.” The firm also created three new CLOs last year with $1.6 billion in assets. Carlyle’s Global incomelending platform,middle-market was subsequently junior capital acquired platform. by McDonnell, Natixis aMarket near doubling Strategies of (GMS) fee income platform, in the primarily second quarter comprising of 2012 Globalwhich divested Asset Management the assets to. focusNatixis, on based its traditional in Paris andfixed fromcredit-related the year-earlier products, period. has $29 Carlyle billion also in acquired AUM and a enjoyed 55% stake in commodities asset manager Vermillion Asset Management (see citedBoston, the said access McDonnell’s to capital fixedand distribution income and formunicipal expansion bond Hedge Funds/Private Equity). providedexpertise bymet its a new“critical parent. need for clients,” while McDonnell , which will be wrapped into the GMS unit Another marquee player, GE Capital, sold $700 million Two private equity buyers from London concluded of CLO contracts to New York’s CIFC Corp. as part of a transatlantic credit-related deals. 3i Group, one of

management business with two transactions, including asbroader a leading five-year corporate strategic lender” partnership. with its own CIFC loan described asset theEurope’s acquisition oldest of private WCAS equity Fraser firms, Sullivan expanded, a New its York debt managementthe alliance as platform. the “intersection A publicly of traded GE Capital’s specialist business in senior secured corporate loans, CIFC has more than $10 managing partner and CEO of the 3iDM debt management billion in CLOs and serves over 200 global institutions. business,firm that managessaid the deal $2.5 for billion WCAS in CLOs.— which Jeremy established Ghose, a 3i stock and warrants in CIFC as part of the deal. Prior to “ambition to build a global, multi-product debt platform.” GE Capital received around $5 million in cash as well as PriorU.S. presence to the WCAS — brought deal, 3i the acquired firm “one Invesco step closer”’s European to its subsidiaries in which DFR Middle Market Holdings sold CLO management contracts, amounting to $2.6 billion in non-corethe GE transaction, CLOs to Deerfield CIFC facilitated Capital a Managementdeal between twofor more than $36 million. CIFC said the sale represented the completion of its plan to “reposition its core business as tradedAUM. The 3i has two been transactions seeking tobring diversify 3iDM’s its AUM business to more to a fee-based asset manager and free up capital to support boththan $10improve billion. performance Like many andprivate revenue equity streams. firms, publicly The second London buyer, CVC Capital Partners, acquired the creating one of the world’s largest structured credit and CLO business of Philadelphia’s Resource America and further growth.” CIFC and Deerfield merged in 2011, CVC Credit Partners, with $7.5 billion in CLOs on both sides leveragedSound Harbor finance Partners asset managers., a New York alternative ofcombined the Atlantic. their CVC credit Capital businesses paid $25 into million a new in firm, cash and granted Resource a one-third share in the new company. investment firm that provides credit to middle-market firms,8 acquired the management contracts on $2.2 Canada’s consolidation saga continued into 2012, as the which is reorganizing around its core retail banking nation played host to several all-domestic fund deals, as well business. Deutsche acquired Postbank in 2010 as part of a as cross border ones involving American buyers (see Cross bid to strengthen its own retail banking operation. Deutsche Border). Canadian banks, which avoided the excesses of the also dropped plans to divest most of its asset management credit bubble and emerged in an acquisitive mood, continued business, instead creating an integrated Asset & Wealth to extend their global footprint, with Bank of Montreal, Royal Bank of Canada and Scotiabank cutting international announced last September to build a “leading client-centric deals (see Cross Border). In the largest domestic deal, Fiera globalManagement universal division bank.” as The part bank, of a whichbroader called strategic Asset plan & Capital Corp. (formerly Fiera Sceptre) acquired the asset management business of National Bank of Canada, in the banking model,” is aiming to more than double income in process becoming the fourth-largest independent asset thatWealth division Management by 2015, “an in partessential by focusing part of onthe ultra universal high net manager in the country and the ninth-largest overall. The worth and emerging market clients. Last year, Deutsche transaction, valued at as much as $310 million, nearly doubles also sold its BHF-Bank private bank to Kleinwort Benson Group (see Cross Border). institutionalFiera’s AUM tobusiness $54 billion; with providesNational accessBank’s toretail the orientation.bank’s distribution network; and balances the company’s dominant 76% of total assets to 54%. Wealth Management Following the deal, Fiera’s institutional AUM dropped from In an interview with Toronto’s Global and Mail, Fiera he news about the wealth industry conveyed in the has positioned itself “to be the consolidator of choice in the latest crop of relevant annual reviews continues Canadianchairman marketplace.”and CEO Jean-Guy Additionally, Desjardins he saidnoted the that company Fiera’s to paint a picture of a generalized post-crisis funk increased heft created a “very high probability that we T will be winning business in the U.S. market” and making characterized by risk-averse investors, slow asset growth, acquisitions. National Bank, which gained a 35% stake in and practitioners experiencing the concurrent impact Fiera, said the transaction is aligned with its objective to use “strategic partnerships to extend our reach both in Canada Capgemini and RBC Wealth Management. It reported and abroad.” Fiera said the deal would “immediately” boost thaton profitability. the number Take of high the net “World worth Wealth individuals Report” (investible from earnings per share by 10%-15%. Fiera made three other deals expanding its Canadian business, including paying between 2010 and 2011 while their investible wealth $52 million for UBS Global Asset Management’s Canadian inassets aggregate of $1 million-plus) declined for theworldwide second timeremained in four flat years, by nearly 2%. In both North America and Europe, assets among HNWIs remained below levels achieved in 2007. forfixed Canadian income, equityWealth and Management domestic balanced Group andaccount real estate “A look at economic and market conditions in 2011 shows investmentbusiness (AUM: manager $8 billion). Roycom The. other acquisitions were the reasons were many, but uncertainty over the ongoing Eurozone debt crisis was clearly a critical factor,” the Another independent manager, AGF Management report says. $43 billion), made its own deal last year, buying Robitaille Asset Management (AUM: The study also highlights the ongoing challenges the

, a Montreal firm with $615 million one of the broad-based themes of the past four years itsin AUM.position Toronto-based as an equity AGF and saidincome the manager.deal both Priorsolidifies to forindustry asset facesmanagers as the in financial general: crisis“the post-crisis lingers, including tendency its long-standing relationship with RAMAGF andTrust enhances Co. to of investors to opt for products that minimize risk and Laurentian Bank of Canada in a transaction valued at the Robitaille transaction, AGF sold managers is being squeezed, with the expense ratio increases the capital available to “accelerate business risingpreserve sharply capital.” by 16 Accordingly, points between profitability 2007 and for 2010 wealth to growth$415 million, for its moreCanadian than and half international in cash. AGF saidinvestment the sale 80%. Regulatory changes that have added complexity to management operations.” Matrix Asset Management risk management also threaten to jeopardize “the future subsidiary Seamark Asset Management bought LeeSide Capital Management, a 3-year-old institutional and isof thatcertain “many revenue wealth streams management for some business financial models services are the ground lost when major client Manulife Financial bucklingfirms.” The under result the of pressure, all these forces,unable theto adapt report quickly notes, Corp.wealth manager. The deal helps Matrix make up some of success.” billion pulled it managed its assets in 2009. from the firm earlier in the year. or effectively enough to position firms for sustained Matrix has $1.1 billion in AUM, down sharply from the $3 The Merrill Lynch In Europe, DWS Group acquired the asset management months later in September 2012 and covering only the business of Deutsche Postbank in a deal between two U.S. and investors at Affluent a lower Insights threshold Survey, ($250,000 released or more a few Deutsche Bank. The transaction in investible assets), provided a slightly different view, involved $10 billion in retail funds managed by Postbank, German subsidiaries of Investment Management Industry Review | 2013 with larger numbers of affluent investors expressing a 9 higher tolerance for risk than in recent years. Just 30% of those this year to create a new unit with surveyed described themselves Within the U.S., Lee Equity City National Asset Management as “conservative” investors in the latest survey, compared with clients,$18 billion City in National AUM that Rochdale targets 36% in 2011 and 50% in 2010. Partners bought Edelman Investmenthigh net worth Management and affluent. By contrast, Convergent Wealth more comprehensive 2012 Financial Group, while several Advisors, acquired by CNB in But Boston Consulting Group’s 2007, is geared toward ultra high in line with the Capgemini/RBC serial acquirers tapped the net worth investors. Rochdale CEO study,Global describing Wealth report a bifurcated was more world in which “mature markets market, including Affiliated of City National Rochdale, touted are experiencing either slow theGarrett enhanced D’Alessandro, capabilities named the head deal or negative growth” while Managers Group, Bryn Mawr developing markets “are riding a of the research team and improved wave of very strong momentum,” portfolioprovides management,his firm, such asas awell doubling as Bank Corp., City National Bank the ability to “grow the business “even if equity markets rebound beyond what Rochdale could have intrends the coming BCG expects years.” to continue, and Mariner Holdings. accomplished alone.” The sale was also driven by the planned In 2011, global wealth rose retirement in 2014 of Rochdale a weak 1.9% to $123 trillion, chairman Carl Acebes, who founded compared with nearly 10% and 7% in 2009 and 2010, respectively.according to AlthoughBCG’s estimates, ultra high net worth investors the firm in 1975. with more than $100 million in household wealth did better than others, asset growth was a subdued 3.6%. The inMariner the Central Holdings, U.S. lastwhich year has as made part of more the expansionthan a dozen of its Marineracquisitions Wealth since Advisors 2008, added business. three smallThe two wealth largest firms deals conservative posture, with investments in bonds, cash and involved the purchase of majority stakes in Adams Hall depositsconsulting comprising firm also indicates 44% of assets, that clients compared maintained with 25% a in Asset Management RiverPoint Capital Management, , a 15-year-old Tulsa firm with $1.3 primarilystocks. BCG due figures to “the the deterioration asset bases forin market wealth values,managers which in billion in AUM; and aggregate were flat in 2011, following 11% growth in 2010, itsa Cincinnati-based Texas footprint. companyThe third $1.3transaction billion inwas AUM. for OrizonAdams InvestmentHall subsequently Counsel opened of Omaha, an office a 12-year-old in Dallas to company extend was not offset by net new inflows.” BCG said there was a “slight decrease in profitability” in most regions. Investment it was time for a change. There were 60 deals last year, in Newswith $300 million in AUM and a clientele drawn heavily lineAmid with that the challenging annual average environment, of 56 between scores of2008 firms and decided 2011, from the medical field. In an interview with including three headline transactions that crossed borders the Orizon, Martin deal Bicknell, as “very the similar” ambitious to other CEO acquisitionsof parent the and primarily involved European companies. The largest Mariner Holdings and an A.G. Edwards alumni, described was Julius Baer’s $900 million acquisition of Merrill be practitioners” more than business managers. “We can Lynch’s international wealth unit. A second deal saw firm has made in which it seeks advisers who “want to Rothschild-controlled RIT Capital Partners acquire the Holdings, which also controls institutional manager minority stake in Rockefeller Financial Services owned Montagetake all the Investments other noise off their plates,” he added. Mariner by Societe Generale, while Kleinwort Benson of amassing $50 billion in assets. To assist with that effort, paid $495 million for Deutsche Bank in late 2011 the company (AUM: hired $10 Fidelity billion), Investments has set a goal banking unit, BHP-Bank (see Cross Border for more of the on U.K.all veteran Brian O’Regan as senior vice president for growth three deals). Within the U.S., Lee Equity’s GermanPartners private bought and development. With the addition of the three Central Edelman Financial Group, while several serial acquirers Brinton tapped the market, including Affiliated Managers Group, Eaton Bryn Mawr Bank Corp., City National Bank and Mariner U.S. firms, and a fourth deal for New Jersey’s Holdings. (AUM: $600 million), Mariner Wealth Advisors has more than $6 billion in AUM. For Los Angeles-based City National Bank, the purchase of took a majority stake in Veritable, LP, an ultra high net New York’s Rochdale Investment Management represented Affiliated Managers Group, based in suburban Boston, the fourth wealth or asset manager it has acquired since 2006. The deal added nearly $5 billion to the $32 billion CNB yearworth (see firm Money with Management)$10 billion in AUM. Veritable was one already managed in its wealth unit and “builds upon [its] aof new three unit asset the management company created investments to invest AMG in boutique made last strategy of providing investment and advisory services in wealth managers, AMG Wealth and Partners the first. As done of the through third three distinct segments.” The bank will merge Rochdale into

10 quarter of 2012, wealth management accounted for 13%, or $55 billion, of the Wealth Management Transactions quarter conference call, chairman and CEOcompany’s Sean Healey AUM. Duringdescribed AMG’s Veritable first- as 2008 2009 2010 2011 2012 “one of the nation’s premier independent Number of Transactions 80 47 39 56 60 wealth managers,” calling the deal “a great Combined Value ($B) $5.6 $5.2 $9.9 $1.1 $3.6 Total Seller AUM ($B) $388 $246 $518 $80 $240 opportunities and “a key foundational stepcalling for card” our wealth as AMG management pursues similar strategy.” Average Deal Size ($M) $70 $111 $254 $19 $60 Veritable, established in 1986 and Average Seller AUM ($B) $4.9 $5.2 $13.3 $1.4 $4.0 located in a converted farmhouse outside Philadelphia, retained a minority stake. Source: Berkshire Capital Securities LLC

Pennsylvania-based bank, has been anotherBryn Mawr active Bank, buyer a publicly in recent traded years and is representative of community banks expanding their wealth management $265New York million private acquisition equity firmof Houston’s Lee Equity Edelman Partners Financial was practices as they seek to diversify earnings with more fee responsible for one of the higher-profile U.S. deals — the Davidson is a fast-growing and broadly recognized name in the mass Trust Co., marking its third such deal in four years, including Group. Edelman, formerly known as Sanders Morris Harris, theincome. 2011 In acquisition 2012, Bryn of Mawr Hershey bought Trust neighboring Co.’s Private Wealth co-CEO Ric Edelman. But Edelman’s popularity did not help theaffluent stock market gain adherents, thanks to asits both one-man its trading marketing volume machine, (daily by Boston Private Financial Holdings, which acquired average of 33,000 shares) and stock market capitalization Management Group. Davidson (AUM: $1 billion) was owned (less than $200 million prior to the deal) languished. In divestedthe firm innumerous 2007 as itasset sought managers to expand as part in the of Philadelphiaa restructuring alluded to those issues in interviews, telling Investment completedarea. Since lastthe financialJune. Davidson crisis, however,was the smallest Boston Privateof Boston has Newsselling, “Companies the firm, which of our has size $18 really billion have in assets, no business Edelman being Private’s wealth advisors and operated in a non-core market.

public,Lee Equity, especially a middle in themarket financial investor, sector.” offered a 43% premium range of services, as well as our market area and depth of penetration.”Bryn Mawr said The the price addition tag on of the Davidson deal could expands reach “our$10.5 a(1.6% strong of trackAUM) record over Edelman’s and is a clear closing leader price in theat the independent time of the over an 18-month period, with one-third of the total announcement. “The Edelman Financial Group has achieved inmillion contingency (or around payments. 1% of AUM) In the based nine months on performance through Equity, adding that he “look[ed] forward to supporting the company’sfinancial advisor continued field,” expansion.” said Thomas In Lee,a nod president to the regulatory of Lee fees rose 40% to $21.4 million compared with the same periodSeptember in 2011, 2012, while Bryn net Mawr’s interest wealth income management of $48 million increased only slightly. Wealth management assets jumped inburdens costs related facing publiclyto Sarbane-Oxley traded firms, rules. Edelman pointed out 44% during the same period to $6.5 billion, including that his now privately held firm will save $2 million each year Davidson’s contribution. BOK Financial Corp., a Tulsa- There were a couple of employee ownership-related deals based regional bank, acquired independent Denver wealth of note, including the agreement by employee shareholders manager Milestone Group. The deal adds $1.3 billion at Aspiriant Investment Advisors to swap their minority stake for equity in parent Aspiriant. AIA, with $2 billion in assets under management and advisement, is the ain presence assets to inthe the $47 state billion through BOK amanages local banking and advises, subsidiary, former Deloitte Investment Advisors wealth management Coloradoincluding moreState thanBank $3 and billion Trust in ,the acquired Denver in area. 2003. BOK has business Aspirant acquired in 2010 from tax and consulting giant Deloitte. Aspiriant, with $7 billion in assets under us to continue our growth trajectory while delivering management and advisement, was formed in 2008 from BOK said it is “actively pursuing acquisitions that allow the combination of two independent California wealth which derives more than 40% of its revenue from fees and commissions,a comprehensive registered investment 28% suite growth to our in net clients.” income BOK, in its wealth management business between 2009 and 2011. entitymanagers, based Kochis on a broad Fitz and employee-ownership Quintile Wealth Management. model. The Denver Post he firm’s goal is to create an independent, nationally recognized proposalMilestone to co-founder grow — through Eric Koeplin referrals, told available the capital Aspiriant has offices in seven cities throughout the U.S. manager Bartlett & Co. bought out owner Legg Mason. andwas otherdrawn resources to sell the — 16-year-old while also firmmaintaining by BOK’s our “unique identity BasedIn the Midwest,in Cincinnati 10 employees and the oldest at venerable independent wealth registered and independent investment philosophy.” As part of the investment advisor in the U.S., Bartlett manages $2.7 billion, transaction, Milestone will retain its name. Investment Management Industry Review | 2013 though assets have been generally flat for many years. As an11 independent company, Bartlett Hambro & Partners of Calkin said it will be able to determine Pattinson. The addition more in-house how best to invest in its On the flip side, the large than doubles James Hambro’s business, including the selection assets under management, advice of appropriate software to serve and administration to $1.8 billion. its clientele. Legg acquired the Canadian banks that came James Hambro & Partners said company in 1996, when Bartlett the deal merges two independent, out of the financial crisis fast-growing and complementary itself going through a transition, companies that are “ideally ashad it $2.3prepares billion to in appoint AUM. Legg its is unscathed and eyeing positioned to attract new clients, following the 37-year run by opportunities continued to with the service offered by the second CEO in five years, largeparticularly banks.” those Following dissatisfied the 2011 Legg has been under particular extend their global presence, acquisition of J O Hambro Capital pressurefounder Raymond to improve “Chip” results Mason. from Management by Australian noted investor Nelson Peltz, the fund manager BT Investment company’s largest shareholder with a particular focus on Management, James Hambro & through his Trian Fund Partners management bought Management hedge fund. emerging markets. Hambro retaining a 10% stake. Dealmakers in the Canadian asset Calkinout 90% Pattinson, of their firm,which with said J Oit management industry remained will “be freed from the day-to- active again last year, with the wealth industry accounting for three transactions of note. and will have more time to devote to our clients,” will be Following its expansion in 2011 into the U.S. via an $848 million wrapped under the Jamesday Hambro demands name. of running a firm investment in American Century Investments, CIBC made a tack-on purchase last year of the private wealth business of Australia recorded two transactions of note, with the MFS McLean Budden. The acquisition adds $1.4 billion to the Crescent Capital $13 billion CIBC already managed in its wealth unit (up from Partners paying around $250 million for ClearView Wealthlargest involving, a wealth private manager equity and lifefirm insurer with $3 billion asset management a focus as it seeks expand fee income (total in assets under management and advice. ClearView $9.9 billion in 2009). Canada’s fifth-largest bank, CIBC has made Wealth, traded on the Australian Securities Exchange, was 47%-owned by London-based investment company withAUM: high $80 netbillion). worth “This clients opportunity and enhance aligns distribution with CIBC Wealth Guinness Peat Group. At one time the investment vehicle capabilitiesManagement’s while strategic delivering priority attractive to strengthen returns,” relationships said Victor for New Zealand-born investor and corporate raider Sir Ron

Budden is owned by Sun Life Financial. performance. In the second deal, IOOF Holdings paid Dodig, CIBC senior executive vice president. MFS McLean nearlyBrierley, $50 GPG million has been for Plan selling B Holdingsassets amid, an disappointing established The second deal saw HighView Financial Group acquire Bull Wealth Management Group from Switzerland’s EFG operations in Australia and New Zealand. One of Australia’s International, adding $1 billion in assets to the $1.5 billion boutique wealth manager with $2 billion in AUM and it already managed. HighView said the deal will “solidify $110 billion in assets under management, administration, our industry position as a leader in the Outsourced Chief advicelargest andwealth supervision. and financial The servicescompany firms, said theIOOF addition has some of Plan B extends its footprint in parts of Australia and New scale for growth “both organically and through select strategic Zealand and its reach in the advisory sector. In 2008, IOOF Investment Officer segment in Canada” while providing the to establish a presence in Canada’s wealth industry, but the acquisitions.” EFG acquired Bull Wealth in 2007 as it sought withexpanded the purchase its business of Old significantly Mutual’s localthrough unit. a merger with been divesting loss-making or marginal assets worldwide Australian Wealth Management, and followed up in 2009 asfirm’s part assets of a broad remained restructuring, stagnant overincluding the years. a second EFG dealhas last year involving the sale of its Danish business to the wealth management unit of Nordic bank SEB. Fiera Capital Corp. Cross Border also picked up a Canadian wealth manager (Canadian Wealth Management) being divested by a European company or the second year running, the breadth of cross management business of National Bank of Canada and UBS’ border deal-making remained impressive, as a Canadian(Societe Generale). asset manager Additionally, (see Money Fiera Management) acquired the. asset F In Europe, the purely domestic transactions were small in in both developed and emerging markets. A few of the largestrange deals of significant zeroed in transactions on U.S. targets were and concluded several centered deal of interest involving the acquisition by James involving European and American sellers underline the number and ambition, but the U.K. did host one London- 12 Cross Border Transactions managementrestructuring industry.efforts by financial services firms that continue to reshape the asset U.S. - International 2008 2009 2010 2011 2012 Number of Deals 22 8 17 21 22 unscathedOn the flip side,and eyeing the large opportunities Canadian banks Value ($B) $0.9 $1.4 $3.9 $2.8 $3.0 continuedthat came outto extend of the financialtheir global crisis presence, with a particular focus on emerging markets. Japan’s traditionally cautious International - International 2008 2009 2010 2011 2012 Number of Deals 38 13 20 27 26 domestically by a slack economy and Value ($B) $3.3 $3.2 $2.0 $2.4 $1.7 dauntingfinancial servicesdemographic firms, challenges, confronted were also notable buyers. And emerging markets players, including sovereign wealth funds, Total 2008 2009 2010 2011 2012 Number of Deals 60 21 37 48 48 their footprint with acquisitions. Value ($B) $4.3 $4.6 $5.9 $5.3 $4.7 continued to flex their muscles and extend Source: Berkshire Capital Securities LLC $679 billion (40% of all deals) during the Globally, cross border M&A was valued at to Thomson Reuters, a 1% drop from Dai-Ichi Life Insurance Co. accounted for the second thefirst same three period quarters in 2011of 2012, that according compares favorably with August deal, announcing that it will acquire a minority stake in Janus Capital Group part of a larger “strategic cooperation agreement” that an overall global M&A decline of 16%. Within emerging includes an additional $2 billion(AUM: investment. $152 billion) For Dai-Ichi, as accountingmarkets, M&A for activity11% of the(both total. domestic In the assetand cross management border) Japan’s third-largest life insurer, the deal represents its industry,dropped 7%there to were$465 48billion, cross with border financial deals serviceslast year deals valued at $4.7 billion, with 22 involving either American demutualizing in 2010 and is in line with a “medium- buyers or sellers. By sector, money management targets term”first international growth plan asset announced management in 2011. investment The company, since predominated, accounting for 23 of the deals. which also holds a 50% interest in Japanese fund manager DIAM 20% of Janus shares in the open market and “conditional fund managers, with both occurring back-to-back in options.” (AUM: At the $125 time billion), of the dealsaid announcement,it will acquire 15% Janus to had The U.S. registered twoCarlyle significant Group scoopeddeals involving up a traditional major a market capitalization of around $1.6 billion. asset manager via the acquisition of Societe Generale’s majorityAugust. In stake the first,in TCW Dai-Ichi said the link to Janus will allow it to “acquire income manager for $880 (AUM: million $130 in billion). 2001, ultimately SocGen acquired an initial 51% stake in the institutional fixed businessknowledge as ofone [the] that global shares asset “a close management connection business.” to the life More crisis, the French bank has been divesting assets to insurancegenerally, thebusiness insurer and has hold(s) identified growth the assetpotential management in light of strengthenboosting that its to balance 70%. But sheet, in the in part aftermath to meet of more the financial growth in population and/or retirement funds.” For Janus, stringent banking capital requirements. Carlyle acquired Dai-Ichi provides a large distribution network in Japan and 60% of TCW while management increased its share other parts of Asia, in addition to the planned investment. In an interview with Pensions & Investments, Janus CEO capital from two of its private equity funds, as opposed to Richard Weil noted that the company’s strategy “included corporatefrom 17% cashto 40%. or shares. Significantly, Although Carlyle Carlyle cut didthe notdeal divulge with a prominent desire to develop non-U.S. client distribution value of its TCW holding by some $250 million. as its bets on booming tech stocks fueled superior fund the terms, prior to the deal SocGen had written down the performanceand relationships.” and growth Janus was in assets, a high-flyer which duringreached the $330 1990s, Based in Los Angeles and founded in 1971, TCW manages billion prior to the dot-com implosion. In the years since, the remainder about evenly split between equities and placed more emphasis on controlling investment risk and two-thirds of its assets in fixed income products, with alternatives. Although the company endured a much the firm has gone through several management changes and publicized split in 2009 with prominent bond trader Jeffrey building its small fixed income business. involving major American sellers and European buyers, with milestone”Gundlach, it that has enhances enjoyed a the rebound company’s in assets “long-term since then. position There were two significant transatlantic wealth deals inMarc the Stern, competitive vice chairman asset management of TCW, called business” the deal while a “major noting that the larger employee-ownership stake “will even more inSociete wealth Generale circles, againas Rothschild-controlled divesting its interest RIT in aCapital business. closely align our interests with those of our clients.” PartnersThe SocGen bought transaction out the matched French bank’s two venerable 37% stake names in New

Investment Management Industry Review | 2013 13 York’s Rockefeller Financial Services. RIT, with net assets of deals in emerging markets, $2.4 billion, is a publicly traded BlackRock, which became the aAs couple Canadian of major firms U.S. concluded asset investment trust managed by managers, BlackRock and Eaton the Rothschild family in London. Vance, headed north to expand. The deal, which formalizes the leading exchange-traded fund BlackRock, which became the long-term relationship between leading exchange-traded fund RIT chairman Lord Rothschild company worldwide with the company worldwide with the and David Rockefeller, serves the 2009 acquisition of iShares, 2009 acquisition of iShares, enhanced its No. 1 position in the to expand their businesses, Canadian market by cutting a deal productpurposes portfolios of two firms and seeking reach. enhanced its No. 1 position for Claymore Canada, owned “I think the United States has by New York’s Guggenheim an edge,” Rothschild told the in the Canadian market by Partners. The deal added $7 Financial Times in discussing the billion in complementary ETF assets and boosted BlackRock’s “To have a strong presence in the cutting a deal for Claymore share to around 80% in a market U.S.ramifications will be extremely of the financial important.” crisis. that has nevertheless become Rockefeller, which focuses on Canada, owned by New York’s increasingly competitive. Analysts clients with a minimum of $30 believe the nation’s ETF market million in assets, has enjoyed Guggenheim Partners. could grow by more than 20% solid growth, with assets under a year. Eaton Vance took a 49% management, advisement and share in Hexavest Inc. administration climbing some $11 billion), an 8-year-old 50% to $35 billion in the three institutional asset manager (AUM: with years through June 2012, according to Barron’s. a global equity orientation. Eaton Vance, which has the

In the second transatlantic deal, Bank of America sold said it will “assume primary responsibility” for Hexavest’s Merrill Lynch’s international wealth management unit businessoption to developmenttake an additional outside 26% Canada. interest “Expanding after five years, (excluding Japan) to Julius Baer for around $900 million our global and international investment capabilities has been and continues to be an important strategic globally on its banking and markets business. For Julius Baer, priority,” said Thomas Faust, chairman and CEO of Eaton in cash and shares (1.2% of AUM), saying it will focus on emerging markets, which account for the majority of Hexavest-subadvised equity funds in the U.S., three of however, the deal fits squarely with a strategic emphasis whichVance. haveSubsequently, a global orientation. the Boston Althoughfirm launched Eaton four Vance new manages some $190 billion in assets, it has little exposure totalthe $84 of $260billion billion, in AUM from it acquired. one-third As prior a result, to the Julius transaction. Baer’s to international equities. Danielemerging Sauter, market chairman AUM jumps of Julius to one-halfBaer, called of the the pro deal forma “a rare opportunity to acquire an international pure-play wealth for the deal in part through a rights offering completed in deals.Meanwhile, There Canadian was one notablefirms focused exception on emerging to the emerging markets, October.management Julius business Baer’s challenge of significant will besize.” to improveThe company results paid in marketswith three story: of the BMO nation’s Financial five major Group banks’s acquisition securing ofsuch CTC Consulting. The Toward that end, the company announced it will cut 15% of the combinedacquired business, staff. In a which second was emerging unprofitable market for deal, Merrill. Julius adviserOregon ultrawith $23high billion net worth in assets firm under advisement, with Baer announced a “strategic collaboration agreement” with itsMontreal Chicago-based bank will wealth combine manager, CTC, an Harris alternatives myCFO specialist Bank of China involving the cross-referral of clients and said the deal combines CTC’s “research and investment joint marketing initiatives. The Swiss private bank also took capabilities” with Harris’ “advisory, implementation. BMO and a 20% stake in Italy’s Kairos Investment Management reporting services” to create a stronger player in the creation of a new private bank, Kairos Julius Baer. The deal asset management presence in China through a minority extends(AUM: $5.7 Julius billion) Baer’s as presence part of a inpartnership onshore markets. that includes For its the investmentultra high net in worthCOFCO segment. Trust Co. BMO also extended its part, Bank of America exited a second wealth management billion). The company is part of COFCO Group, a state-run Mitsubishi UFJ of Beijing (AUM: $5.7 Financial Group, which established the joint venture with business involving Merrill Lynch in Japan. managementconglomerate and with capital which markets BMO has experience” had financial to dealings.help BMO said it “can leverage its North American wealth MorganMerrill in Stanley 2006, will pay $470 million for its partner’s 49% Lloyd share. Mitsubishi is expected to work more closely with Georgedevelop ManagementCOFCO Trust’s. business. In 2011, BMO acquired set up several joint, having ventures. acquired a 22% stake in the firm Hong Kong wealth and institutional manager during the financial crisis. The two companies have already 14 The nation’s largest bank, Royal Bank of Canada, cut a expected to achieve robust growth in the long term” and deal with government-controlled Royal Bank of Scotland to buy the Latin American, Caribbean and African wealth to exchange personnel and “promote further cooperation.” Coutts, said it will install a director with RCAM as part of the effort including staff based in Switzerland and the Cayman There were several other deals in India, which has been Islands.management RBC said business the transaction of private client— involving firm more than $2 to increase its business in “key high-growth markets.” thereforming legacy ofits tight economy state sincecontrol. the Last 1990s, year, albeit in a bidin fits to attractand Althoughbillion in AUMRBC is— one represented of the largest an “excellent wealth managers opportunity” in morestarts foreignreflective capital, of the India nation’s expanded feisty political the direct scene investments and the world, emerging markets represent just a fraction of non-nationals could make in Indian stocks. Still, the Indian that business, and the company has indicated its intent to mutual fund market remains challenging, having stagnated expand in those markets via acquisitions. RBS has been selling non-core assets as it reorganizes around retail banking, with Cross Border Transactions by Domicile and Type the divested business comprising a small portion of Coutts’ worldwide assets. Buyer: U.S. international international 2012 Seller: international U.S. international Total Scotiabank, another active emerging markets player, took a 51% share in Wealth Management 1 2 7 10 Colombia’s fourth-largest pension fund Money Management 5 6 12 23 company, Colfondos Other 5 3 7 15 calling the expansion of its footprint in Latin America “a strategic (AUM: priority.” $9.3 billion), The Total 11 11 26 48 deal builds upon two other acquisitions the Toronto-based bank has made for Buyer: U.S. international international 2011 Latin America pension fund companies Seller: international U.S. international Total since 2007 (in Peru and the Dominican Wealth Management 1 2 8 11 Republic). Prior to the transaction, Money Management 5 4 14 23 Scotiabank formed a partnership with Colfondos parent Mercantil Colpatria Other 7 2 5 14 and acquired a 51% stake in another Total 13 8 27 48 Banco Colpatria, Source: Berkshire Capital Securities LLC Colombia,Mercantil subsidiary,emerging from years of chaos spawnedColombia’s by fifth-largest organized crime financial and group. political unrest, has enjoyed solid economic growth of late and is attracting investments. As a result, the promise of reform and long-term more interest from international investors. Scotiabank’s since 2010 with $130 billion in AUM, largelyFidelity in conservative Worldwide global wealth management division accounted for 17% Investments profit potential was not enough to keep L&T operations in general accounting for over 40%. Rich Waugh, Finance. Fidelity in the Worldwide, market, as which the firm represents sold its loss-making Fidelity presidentof profits in and the CEO, third has quarter stated of a goal2012, to with increase international that ratio to Investments8-year-old mutual’ non-North fund business American to Mumbai-basedbusiness, managed $1.7 more than 50% in the “medium term.” The bank operates in billion in assets in India. With the addition of that business, more than 55 markets.

Other deals involving emerging markets were varied, with intoL&T higher-endFinancial more foreign than and doubled privately its AUMheld banks.and extends L&T, which its India and China remaining a focus and emerging markets reportedlydistribution paid network around from $100 independent million for financialthe business, advisors is part players themselves taking a hand in transactions, in line of Indian conglomerate Larsen & Toubro. both of Asia’s giants, as the nation’s cash-rich corporations Atlanta-based Invesco hadwith by recent October trends. of last Japanese year recorded firms were more notable than $100 players in billion in international acquisitions, shattering the record Religare Asset Management, with a significantCo. global business, of $84 billion set in 2011. The largest deal in India or opted to enter the market, taking a 49% stake in Mumbai’s China involved Nippon Life Insurance Co.’s $290 million (AUM: $2.6 billion), with acquisition of a 26% stake in India’s second-largest asset ina price 53 cities tag placed across inIndia. the $90Invesco million already range. had RAM, a presence which has manager, Reliance Capital Asset Management inregistered India through fourfold its growthWL Ross in &AUM Co. since 2008, has offices billion). As is the case with numerous deals in India and (AUM: $19 private equity affiliate involving Nippon’s minority investment in Reliance Flanaganand a large said back-office the deal “willfunction. enhance In the our company’s presence third- in an GroupChina, the’s insurance two firms arm. built Nippon, off of an the existing leading relationship private life importantquarter conference and growing call, marketInvesco and president will expand and CEO again Martin our insurer in Japan, called India an “attractive market that is

comprehensive range of investment capabilities.” RAM Investment Management Industry Review | 2013 15 parent Religare Enterprises, paid $7.2 billion for Royal Bank of Scotland’s aviation-leasing Schroders concluded a business, touted China’s Post’s a New Delhi financial services “strong growth potential,” in part Shivinder),firm controlled acquired by the stakes billionaire inSingh two brothers U.S. alternative (Malvinder asset and second cross border deal collaboration with the two state- managers in 2010 through ownedbased on enterprises. a potentially profitable its global asset management by acquiring California- business. The company also runs London emerging markets a domestic wealth management based STW Fixed Income specialist Ashmore Investment joint venture with Macquarie Management acquired the Group of Australia. 49% stake owned by Aviva in a Management, an established prospective fund management One other Indian deal of note joint venture with China Central saw London’s Schroders institutional firm with $12 Securities. Aviva signed the acquire a 25% stake in Axis original agreement with CCS Asset Management billion in AUM and a focus on in 2009 but had yet to receive regulatory approval for the is part of Axis Bank, (AUM:one of $2.3the investment-grade bonds. venture. Ashmore, which in 2011 nation’sbillion), alargest 3-year-old private firm (non- that acquired a majority stake in state) banks. Schroders derives Virginia-based emerging markets about one-quarter of its revenue equities manager Emerging from Asia, making it the largest Markets Management, owns a than 1,600 branches, provides Schroders with a strong fund manager, Everbright Ashmore domesticmarket after distribution the U.K. The network. link to Rajiv Axis Anand,Bank, with managing more minority stake in a Hong Kong-based FinancialChina real News estate that having a “Chinese asset manager in the. Graeme portfolio” Dell, is a long-termAshmore group necessity finance and director, noted that told the company was “very director and CEO at AAM, told India’s NDTV news channel productsthat the deal while allows delivering his firm to “tolocal get investors a piece of some the pie”of well under way.” Schroders’of money flows global from products. offshore “We investors will also for work its domestic together to happy” to choose a firm in which “the team process was build a best-in-class asset manager,” he added. Schroders In a second Chinese deal involving a divestiture by a concluded a second cross border deal by acquiring Value Partners Group California-based STW Fixed Income Management, an paid $6.4 million for the 49% share in KBC Goldstate FundEuropean Management firm, of Hong Kong a focus on investment-grade bonds. Schroders, with $23 established institutional firm with $12 billion in AUM and owned by Belgium’s KBC Asset downManagement. sharply KBCin recent Goldstate, years. established Value Partners, in 2006, in which has been expandingbillion in U.S. its fixedinstitutional income clientassets base. prior Schroders to the deal, global said the Boston’sa troubled Affiliated joint venture, Managers with AUM Group of justholds $155 a 5% million stake, acquisition broadens its U.S. fixed income portfolio while philosophyhead of fixed favoring income, actively Karl Dasher, managed told andMutualFundWire. “higher-alpha” empowersaid the acquisition us to develop gives into it a an footprint Asian-based, in all three world-class “Greater strategiescom that the over two indexing, firms share which a similar he believes investment is “likely to fundChina” management markets of China,group,” Hong said KongCheah and Cheng Taiwan. Hye, “ItValue’s will struggle” by comparison. Goldstate Securities Joint Stock Co. is a Shenzhen-based In China, where equities have been in a funk for four years chairman and co-chief investment officer. Majority owner market early in 2012 — prior to the freeze in bilateral heldinvestment by two bank,minority broker shareholders and advisory in Polish firm. (Separately, asset manager relationsrunning, onethat of began Japan’s in Septemberlargest financial over afirms territorial entered the KBC AssetTCI Management paid $22 million for the stakes dispute surrounding the Senkaku islands. That deal saw Baring Asset Management of London acquired Sumitomo Mitsui Financial Group assume a 24% stake SEI Asset, giving Korea the Co. firm 100% of the company.) In South in Beijing’s China Post & Capital Fund Management, in managerKorea, in Asia’s third-largest such market. Following the deal, Baring said it(AUM: will bring $6.3 billion),its “deep a pooltop-20 of Asianasset a presence in the nation’s asset management industry. The resource and distribution expertise, aligned with our the process becoming the third Japanese firm to establish Beijing Capital Group, market and build on the success already achieved 6-year-old Chinese firm, with AUM of $4 billion, has two highly international investment platform, to the Korean significant domestic shareholders:China Post Group, a Massachusetts Mutual Life Insurance Co. state-ownedan infrastructure-to-financial postal business that services is also provider the parent controlled of by SEIAK.” Baring, with $47 billion in AUM, is part of Postalby the BeijingSavings Municipality; Bank of China and. Sumitomo, which last year GCS Capital, A Hong Kong-based private equity firm, 16 joined the growing lineup of Asian-based financial firms pension fund manager. The deal builds on Principal’s existing capitalizing on the financial woes A Hong Kong-based private Chilean asset management severalof European rivals and to pay U.S. $500 firms million to pick business, which manages $5.2 forup significantDexia Asset assets, Management as it beat out billion in pension, mutual fund and equity firm, GCS Capital, parent, French-Belgian bank than 600,000 new customers. Dexia(AUM:, $105has been billion). the recipient DAM’s of joined the growing lineup of Chile’sannuity established assets; it also private adds pension more multiple bailouts from the French plan is one of the great success Asian-based financial firms stories in Latin America and has said it will “maintain Europe been emulated by other nations in and Belgian governments. GCS capitalizing on the financial the region. Established in 1981, the while expanding distribution intoas DAM’s emerging center markets of excellence” in Asia woes of European and U.S. and continues to register strong growth,plan has with some assets $160 growing billion in by AUM an annual average rate of 12% in the announcedand the Middle a partnership East. As part with firms to pick up significant last decade. bankingof that distribution giant Industrial effort, and GCS Commercial Bank of China, assets, as it beat out several Principal said the deal “will generate accelerated growth asset management partner rivals to pay $500 million for because of our ability to now offer which will grant DAM “preferred customers in Chile an unmatched Dexia Asset Management. lineup of pension savings and providestatus.” GCS Asia-focused said it also investments “sees retirement income solutions.” The a significant opportunity” to company paid for the deal in part clients. In a similar opportunistic with $600 million raised in a 2012 dealto DAM’s in 2009 European featuring and another Australian bond offering. In a second, smaller Bridge Partners acquired the global transaction, Principal acquired asset management business of American International 60% of Brazilian mutual fund company Claritas Investments GroupHong Kong. That investor, same year, Singapore’s Oversea-Chinese Banking Corp. acquired ING Groep’s large Asian private fund and asset management market. As in Chile, Principal had banking business. an(AUM: established $1.8 billion), presence giving in itBrazil, access where to the it nation’s provides mutual pension and annuity products through a joint venture with Banco do In Latin America, the major regional cross border deal Brasil. Since 2010, Principal has cut six deals to enhance its with an asset management component involved Brazil’s position in emerging markets, including one additional Latin BTG Pactual. Run by billionaire Andre Esteves, who between 2006 and 2009 sold and then bought back (at a UBS American transaction (in Mexico) in 2011. The company now a premier investment bank in Latin America with solid has $80 billion in AUM in the region. Qatar Holding lower price) the firm from , BTG has built itself into year, the company strengthened its regional position by sawFrom the one investment of the Gulf’s company, emerging part markets, of the Qatar Investment purchasingties to sovereign Chilean wealth investment funds in bank, Asia wealthand the manager Gulf. Last Authorityconcluded twosovereign asset management-relatedwealth fund, take a 22% deals. stake The in first and mutual fund provider Celfin Capital for an estimated China’s CITIC Capital, a private equity and real estate $600 million in cash and shares. With the addition of $10 sovereign wealth fund among its other investors, China Investmentinvestment firm. Corp. CITIC For Qatar,Capital the counts deal offersa second access powerful to whichbillion alsoin AUM raised from $1.9 Celfin, billion BTG in approachedan initial public the $100offering billion additional China investment opportunities, including lastmark year while on expandingSao Paulo’s into Bovespa Chile, exchange, Colombia followedand Peru. up BTG, by private equity. CITIC Capital said the connection will paying $52 million for Colombian broker, fund provider provide “an enlarged capital base to fund our business and wealth manager Bolsa y Renta expansion and investments” and “strengthen our brand positioning” as a “preferred and committed partner to Latin America as the company focuses (AUM: on organic $3.4 billion). growth. invest with, both in and outside China.” In the second BTG told Bloomberg the acquisition would be its “last” in transaction, Qatar reached agreement with Credit Suisse management revenues rose 47% over the previous year’s to form an asset management joint venture, Aventicum period,In the first accounting nine months for 14% of 2012, of total BTG’s revenues. asset and wealth Capital Management institutional investors and “focus on asset classes that Iowa’s Principal Financial accounted for the largest . The new firm will target global transaction in the region, as it added to its Latin American pension business with the $1.5 billion acquisition of AFP markets.reflect current At its annualmarket meeting,trends,” including Credit Suisse investment chairman Urs Cuprum Rohneropportunities noted thatin the the Middle company East, is Turkey taking andsteps other to “focus frontier our

(AUM: $32 billion), Chile’s fourth-largest mandatory Investment Management Industry Review | 2013 17 business more on faster-growing markets,” with the aim of a strategy of “gradually growing the scale of its wealth increasing share of revenues from such markets from 15% to management platform to better leverage opportunities 25% within two years. industry.” Canaccord will pay up to $20 million for Eden Europe played host to several cross border deals of note, basedarising on from performance consolidation targets. in the U.K. wealth management including one of the year’s largest private banking transactions: Kleinwort Benson Group’s $495 million acquisition of BHF- Northill Bank, owned by Deutsche Bank Capital of London take a majority stake in Riverbridge PartnersA transatlantic deal involving a U.K. buyer saw caters to middle-market entrepreneurs. Based and in Germany their families and with with for institutions and high net worth investors. Riverbridge roots stretching back to 1854, BHF has $46 billion in AUM and , a Minneapolis-based equity investment manager $8 billion) was itself acquired in 2009 by Brussels-based RHJ praised Riverbridge’s “investment-led ... ‘no stars’ culture” Internationalat least 1 million, which euros in to the invest. years U.K.-based since has transformedKleinwort (AUM: itself andwas “largelyfounded untapped in 1987 and international has $4 billion potential.” in AUM. In Northill acquiring 58% of the company, Northill bought all of the equity of retired or former partners and half the equity of the existing

At its annual meeting, Credit focused on the asset management industry that is backed bymanagement Swiss-Italian team. billionaire Northill Ernesto is a 2-year-old Bertarelli investment and managed firm Suisse chairman Urs Rohner noted by veterans of BNY Mellon. Northill, which seeks 50% to that the company is taking steps writing80% stakes that in“we targeted invest forfirms, the rejects very long the termlabel and“private derive ourequity,” returns with from the firm’s the income founder generated and partner by ownership Jonathan Little to “focus our business more on rather than focusing on an exit.” The deal represents faster-growing markets,” with Northill’s fifth acquisition and its first involving a U.S. firm. the aim of increasing share of Real Estate revenues from such markets from 15% to 25% within two years. again, albeit with the speculative excesses of the early- Ito-midnvestors 2000s are sniffing still fresh around in mind. the U.S.Indeed, real theestate post- market crisis investor is often seeking something fairly prosaic: A return that simply beats the negligible interest offered by investment-grade corporate bonds and Treasuries. One result of this change in sentiment: The return of a once-hot group. To help fund the deal, RHJI tapped several investors, real estate product that investors have shunned since 2008 from an industrial holding company into a financial services — the commercial mortgage-backed security. Fosun Group Aqton SE billionaireincluding BlackRock; entrepreneur privately Stefan held Quandt. Chinese As a conglomerateresult, RHJI said its ; and , owned by BMW heir and some observers projecting a 50% increase in 2013. That’s BHF in 2009 as part of the larger deal for Sal. Oppenheim but aLast far year,cry from CMBS the issues record in $230the U.S. billion reached issued $46 in billion, 2007, butwith viewedstake in theKleinwort company would as a non-coredrop to 60%. holding. Deutsche Bank acquired a sharp move off the collapse between 2008 and 2010,

BNY Mellon of the change: American International Group, brought bought the 50% of joint venture WestLB Mellon Asset when issuance was a combined $25 billion. More evidence In a second deal involving a German target, Management crisis, is getting back in the game. In addition to its direct investmentslow by mortgage-related in real estate, investments the insurer duringbought the back financial some of and service company that it did Portigon not own., “an BNY important Mellon calledmilestone,” the transaction, completed with German portfolio management Fed’s balance sheet clearance sale of billions of once-toxic venture was created in 2006 and manages $32 billion in realthe CMBS estate-related the Federal instruments Reserve divested found eager last year. yield-seeking Indeed, the noting that Germany is “a key strategic priority.” The joint assets for institutions. One additional transatlantic deal saw institutional buyers — the demand driven in part by the Toronto’s Canaccord Financial buy Eden Financial Fed’s very own accommodative monetary policy. , a U.K. managementprivate client marketboutique gained with $1.3through billion the in 2011 AUM. acquisition The deal of collapse, billionaire hedge fund manager John Paulson, London-basedexpands Canaccord’s Collins existing Stewart presence Wealth inManagement the U.K. wealth Meanwhile, one of the major beneficiaries of the real estate that the residential market is rebounding. His 3-year-old (AUM: expressed confidence at a year-end shareholder meeting $13 billion). Publicly traded Canaccord said the deal reflects 18 Paulson Real Estate Recovery are also assuming direct control of parts of their real estate $300 million), which has been buying up residential land portfolios as they attempt to improve returns — and and hotel companies, has doubled private in value equity since fund its launch(AUM: save on fees. These include the Abu Dhabi Investment in 2009, according to the Wall Street Journal, and is aiming Authority, Canada Pension Plan and Harvard University. for 24% annual returns going forward. Paulson is also Indeed, a Preqin survey of large institutional investors raising a second fund focused on residential land purchases worldwide found that 80% were either investing directly in what were some of the hardest-hit markets, such as in real estate or weighing the possibility, and a month Phoenix and Las Vegas. before the Calpers deal, the California State Teachers’ Retirement System paid $820 million for a multifamily and The Lehman Brothers estate has also been capitalizing commercial property developer, LOCR Inc. on the uptick in real estate activity to sell its existing portfolio of properties and pay off creditors, culminating Calpers already manages a part of its $18 billion real in the $6.5 billion sale in November 2012 of the largest estate portfolio in-house and has also worked with its fund asset in its portfolio, apartment owner Archstone. The managers to create dedicated products. But the pension 2007 purchase of Archstone was a contributing factor in 15-year investing relationship, “a new strategic move” that debt. Berkshire Hathaway made a bet fund called the deal for Bentall Kennedy, with which it had a onLehman’s the residential demise, propertyas it saddled market the firmby with significant acquiring the Prudential and Real Living real estate brokerages and forming a Real Estate Transactions partnership with seller Brookfield Asset Management to introduce 2008 2009 2010 2011 2012 Berkshire Hathaway HomeServices. In his latest shareholder letter, Berkshire Number of Transactions 5 6 18 11 10 chairman Warren Buffet expressed Combined Value ($M) $358 $280 $960 $2,058 $230 Total Seller AUM ($B) $20.8 $13.8 $79.8 $117.4 $38.9 market system will restore the needed Average Deal Size ($M) $72 $47 $53 $187 $23 balanceconfidence — probablythat “demographics before long” and to our the housing market. As if to underline Average Seller AUM ($B) $4.2 $2.3 $4.4 $10.7 $3.9 the positive vibes from investors, the Source: Berkshire Capital Securities LLC National Association of Realtors reported in November 2012 that existing home sales rose 11% in October from the year-earlier period. will allow staff to work with “an experienced real estate investment and management team by taking an ownership straight month of year-over-year price increases — a interest.” Calpers, which acquired the stake from Canadian streakMedian last prices seen were in 2005-2006. also up 11%, marking the eighth pension fund manager Caisse de depot et placement du Quebec, also cited the company’s “environmental Amid these hopeful signs in residential and commercial real and governance leadership.” The other major outside estate investing, in 2012, the real estate advisory industry British Columbia registered 10 deals. One expected deal that would have Investment Management Corp., one of Canada’s largest bumped the numbers and didn’t take place involved the sale publicinvestor employee in Bentall pension Kennedy fund is managers (the company’s by Deutsche Bank of its large RREEF real estate advisory unit. The expected buyer, Guggenheim Partners of New management also holds a one-third stake). Bentall Kennedy global asset management business, but ultimately zeroed in holdswas formed 140 million by the square 2010 merger feet of propertiesof Seattle-based on both Kennedy sides onYork, RREEF, was initially which some considering observers a play believe for the could German have bank’sfetched Associates and Toronto’s Bentall, creating a firm that now around $500 million. The two sides parted when they platform in describing the deal, calling it “a welcome couldn’t agree on terms, and Deutsche Bank opted to hold additionof the border. to our Calpers real estate alluded strategy.” to the firm’s North American the real estate unit and larger asset management business, Another major pension fund investor, TIAA-CREF, added to business to BlackRock at year-end. its natural resource assets by acquiring a majority stake in although the bank did sell its small U.K. property fund timberland investment manager GreenWood Resources and deals, however, including a headline transaction or owned timberland investments to $1.8 billion (the thatThe industrysaw the California did draw a Public number Employees’ of significant Retirement buyers company(AUM: $350 has million). been investing The deal in brings timberland TIAA-CREF’s since 1998). managed System pay $100 million for a one-third stake in Bentall Within its natural resources portfolio, the deal also builds Kennedy on TIAA-CREF’s 2010 acquisition of agricultural asset throughout the alternatives arena involving institutions manager Westchester Group making direct (AUM: investments $19.8 billion). in their The managers deal mirrored (see Hedgea trend including a growing population and increasing demand for Funds/Private Equity). Increasing numbers of institutions timber and biofuels, make this. asset“Macroeconomic category a compelling conditions,

Investment Management Industry Review | 2013 19 Hedge Funds/Private Equity

The retail investor is starting uring the course of a long and distinguished career, KKR & Co. to look like an attractive Dhas amassed an estimated fortune of $3.7 billion, making him one of co-founder the 100 richest and co-CEO Americans George in the Roberts latest diversification prospect, with Forbes inventory. But last November, Roberts was “just folks” at Charles Schwab’s annual advisors conference the price of admission for KKR’s in Chicago, where he manned an information booth and engaged in a buffet lunch. The purpose of Roberts’ visit: funds a mere $2,500. funds to John Q. Public. pitch new KKR high-yield and special situations mutual Welcome to the “new normal” in the alternative investments

potatoes involves plying big institutions for big money for founded in 1988, specializes in the acquisition, development acquisitions,world. Like other including private the equity famous firms, 1988 KKR’s leveraged meat andbuyout andlong-term management investment,” of high-yield, the company short-rotation said. Greenwood, sustainable tree farms located throughout the world. But institutions, while committed to alternatives of all stripes,of RJR Nabisco have grown recounted testier in about “Barbarians the performance at the Gate.” of many USAA private equity funds, not to mention fees. Private equity market, acquired a large minority stake in Square Mile Capital, a Managementfinancial services, an opportunisticfirm with a niche real in estate the military investor challenging. As of the third quarter of 2012, the industry wasfirms still themselves sitting on are $100 finding billion the in deal capital environment raised in 2007 more and include distressed and high-yield debt, recapitalizations and 2008, according to Preqin, in addition to tens of billions undervaluedwith $2 billion equity in AUM situations. in three Onefunds. example Those investmentsof an investment from the Federal Deposit Insurance Corp. of some $400 million more from earlier fund-raisings. Generally, private equity inNew hotel-related York-based mortgages, Square Mile reportedly has made for is the around 2011 80 purchase cents on firms must return unused capital to investors, and forego the dollar, in a venture with Blackstone Group. USAA Real thoseIn the managementface of these challenges,fees, after five the years. retail investor is starting Estate helps “broaden the investment opportunities we can offer our clients.”, which USAA closedReal Estate the deal manages for Square $12 billion Mile, said in diverse the firm real transformationto look like an attractive — also evident diversification among its prospect, publicly with traded the estate assets for pension funds and other institutions. competitorsprice of admission — incorporated for KKR’s fundsexpansion a mere into $2,500. the fund KKR’s of hedge funds business last year through the acquisition There were two deals involving London buyers, the larger of Prisma Capital Partners. Fund of funds have been of which saw real estate fund manager and venture capital enduring their own set of challenges, partly the result Palmer Capital Partners pay $64 million for Invista of the extra layer of fees they charge combined with Real Estate Investment Management. Publicly traded on underwhelming returns. The industry also received a black firm lack of operational, due diligence and investment acumen Asia-focusedthe London Stock fund Exchange’stargeting self-storage AIM exchange, assets. Invista In 2010, has $1.2Invista eye from several high-profilePension blowups & Investments that revealed latest annual a lostbillion $3 inbillion AUM in in real an opportunistic estate fund management pan-European mandates fund and an survey, the assets of the 25 largest fund of hedge funds from Lloyds Banking Group and began selling off assets as among some firms. In part of a “value realization strategy” that involved returning the entire sector, assets are off a stunning 42% since June cash to shareholders. Palmer’s bid was supported primarily 2008,firms hadby the dropped magazine’s 7% to reckoning. $321 billion Hedge as of Fund June Research2012. For by funding from a U.S. real estate advisor, Townsend Group. In the second deal, Henderson Global Investors acquired 18% between 2007 and 2011 to $644 billion. Horizon Investment Management France, a privately (HFR) paints a slightly less jarring picture, with AUM down owned French real estate manager with $320 million in a The result of these assorted pressures has been ongoing Luxembourg closed-end fund and asset management contracts consolidation, with 2012 ushering in a number of for 25 properties valued at about $1.3 billion. Henderson, have been seeking to build scale. But, as they battle Horizon’s focus on the business sector complements its own forsignificant institutional fund ofmandates, funds deals. they Predictably, are also searching buyers for retailwith $19 property billion expertise in property in France, AUM (19% creating of total “a balanced AUM), said basis capabilities that can help them fashion a more compelling from which to target future growth within the French market.” suite of investment solutions, including managed accounts tailored for individual clients. In a study of the industry France to about $2.4 billion. The deal more than doubles Henderson’s real estate AUM in raised by investors and consultants involved customizing by SEI Knowledge Partnership, the most common issue 20 portfolios. Prisma, for example, already manages 60% of its Franklin Resources enhanced its alternatives platform assets in that manner. Another key theme involved a value- by taking a majority share in another top-20 fund of funds added shift from brand-name managers toward emerging manager, K2 Advisors Holdings managers and strategies. management holding a minority stake that Franklin will (AUM: $9.3 billion), with debt as part of the deal, bought the majority stake owned are grappling with their own new normal, including bybegin TA toAssociates acquire in 2016. Franklin, which also retired K2’s performanceMeanwhile, the that hedge often funds lags traditionalcomprising indices. the fund In of 2012, funds investments in asset managers. Franklin, a retail-focused hedge funds in aggregate returned 6.2%, according to HFR, traditional fund manager, a private with equity an eye firm on with boosting numerous the compared with 13.4% for the Standard & Poor’s 500 (16% including dividends). The challenge of delivering results in this new environment is leading some Hedge Fund / Hedge Fund of Funds Transactions hedge funds to lower fees, including heavyweights like Caxton Associates. 2008 2009 2010 2011 2012 Others, like Moore Capital Management, are returning capital to investors, with Number of Transactions 30 10 20 14 23 founder Louis Bacon citing illiquid and Combined Value ($M) $1,417 $201 $2,792 $873 $892 Total Seller AUM ($B) $46.2 $19.7 $125.0 $42.9 $60.5 Carl Icahn returned capital and exited thevolatile job ofmarkets. managing George money Soros for andothers Average Deal Size ($M) $47 $20 $140 $62 $39 altogether. In a reference to the losses Average Seller AUM ($B) $1.5 $2.0 $6.3 $3.1 $2.6 investors suffered in 2008, Icahn wrote: Source: Berkshire Capital Securities LLC “I do not wish to be responsible to limited partners through another possible market institutional side, called the acquisition “an important squeezed by costs and competition for dollars, with hedge step in our overall plan to expand Franklin Templeton’s crisis.” Meanwhile, small firms are being alternative strategies and solutions platform.” In the with the same period in 2011. “The thinking that you could hunkerfund liquidations down for aup couple 14% inof theyears first and half then of 2012it would compared all normalize again — that is going away,” Luke Ellis, head of wouldcompany’s have fiscal a minimal fourth-quarter impact “relative conference to our call, huge Franklin asset Man Group’s fund of funds unit, told the Financial Times. CEO Greg Johnson acknowledged that the acquisition “And it’s coming as a shock.” of our clients have been asking about.” Founded in 1994, base,” but called K2 “a nice fit into something that a lot founding managing directors signed long-term employment dealsAs hedge last fundsyear, compared continue to with find an their average footing of 30 five between years after agreementsK2 had been as speaking part of thewith deal. suitors since 2011; its two the start of the financial crisis, the industry recorded 23 Legg Mason acquire Fauchier Partners, a London-based of2006 funds and sector 2008. via This one included of the larger KKR’s players. acquisition Established of Prisma, in A third high-profile deal within the sector saw 2004which by provides three former the private Goldman equity Sachs firm withpartners, entry Prisma to the fundhas company, established in 1994 and majority owned by BNPfund Paribasof funds priormanager to the with deal, $6 willbillion be inmerged AUM. withThe Legg Permal fund of funds unit, creating a includingnearly $8 billionthe minority in AUM, holding 90% from of Dutch institutions, insurer Aegonwith assets, while Prismanearly doubling management since agreed 2009. KKR to invest acquired all after-tax 100% of proceeds the firm, andMason’s product existing mix, and a stronger institutional focus. On in their funds subject to a 5-year lockup. Aegon will also themanager product with side, $24 Fauchier billion in focuses AUM, a on broader equity geographichedged and continue to invest in Prisma funds. income, credit and macro investing. On the client end, conference call, Scott Nuttall, global head of the Capital Permalevent-driven has a investmentsmix of institutional while Permal and wealthy emphasizes clients fixed In discussing the deal during KKR’s second-quarter in North America while Fauchier’s base comprises “breadth of the liquid product offerings” supplementing the company’sand Asset Management current direct Group, hedge said fund Prisma portfolio increases and credit the CEO of Fauchier, said his clients “will be able to access products, while allowing for cross-selling opportunities oneinstitutions of the industry’s in Europe largest and Asia-Pacific. managed account Clark Fenton, platforms, which is of particular relevance to our growing majoritybetween ofthe Prisma’s two firms’ business complementary revolves around client bases.customized Among acquired Permal in 2005, said the deal will be accretive portfolios,Prisma’s 50 which largest can clients, involve the anywhere firms share from just a half-dozentwo. The customized account offering.” Legg Mason, which specialists. Prisma will retain its brand name. wereto earnings managed in its for first non-U.S. year. Inclients its most while recent alternatives quarter to more than 30 managers, often early-stage firms or accountedthrough September for 12% of2012, gross 39% revenue. of Legg Mason’s assets

Investment Management Industry Review | 2013 21 In the largest fund of funds deal involving two European Penjing Asset Management, a 7-year-old fund of funds

FRM Holdings deal incorporates a contingency payment based on assets. independentasset managers, fund Man of funds Group business acquired based a neighboring outside the London U.S., manager with $430 million in AUM. The cash-and-shares firm, (AUM: $8 billion), to create the largest the largest Asia-focused fund of funds groups, with around contingency consideration of nearly $83 billion paid out Swiss-based Gottex said the combination establishes one of overwith three$19 billion years inbased AUM. on The asset deal incorporates a maximum retention and performance $800 million in AUM. In 2011,saying Gottex “the hugeco-founder wealth Max creation fees, with no upfront payment. theGottschalk region ismoved experiencing” to Hong Kong, necessitated his being there deal provides the opportunity In the largest fund of funds full time to “service our clients Man CEO Peter Clarke said the and present them with market- deal involving two European leading investment solutions.” to “significantly improve the Following the Penjing acquisition, complementaryprofitability of our investor multi-manager bases the company also appointed a business” by combining the firms’ asset managers, Man Group managedand “pairing accounts FRM’s infrastructure.”well-regarded acquired a neighboring countedmarketing just head 1% for of itsAsia-Pacific. client base In (Clarkeinvestment will processesstep down with as CEO Man’s early its latest full year (2011), Gottex this year.) The combined business, London firm, FRM Holdings, which is expected to generate in Asia-Pacific, with the majority $45 million in annual savings, will to create the largest halfin Europe. the level Publicly it managed traded prior Gottex to has $7.4 billion in AUM, about independent fund of funds of funds deal involving an Asian operate under the FRM brand. For targetthe financial saw Amsterdam-based crisis. A second fund Man Group, which has suffered business based outside the seeding platform IMQubator anda sharp helps drop lessen in AUM dependence since the on its create a partnership with financial crisis, the deal boostAHL assets. Synergy Fund Management U.S., with $19 billion in AUM. quantitativeThere were flagshipseveral crossfund border Asian hedge fund managers. fund of funds transactions of note, of Hong Kong to seed emerging including a transatlantic deal There were a couple of small between Kenmar Group of New domestic U.S. deals early in York and Olympia Group of Companies of Paris. The two established companies merged to form Kenmar Olympia Lighthouse Partners Group minoritythe year involving stake in 361 fund Capital of funds, in managers. the process In gainingthe first, access (AUM: $6.4 billion) acquired a to expanding, with $3.3 the productbillion in portfolio, AUM across Olympia a broad CEO product Sergio For its part, Denver-based 361 said it “expects to leverage Heuerportfolio said and the offices deal will in the “enhance U.S., Europe our ability and Asia. to source In addition new Lighthouseto a larger menu Partners’ of affiliated expertise advisors in creating and intermediaries.alternative managers and provide opportunities for career growth to investment products to expand [its own] lineup of liquid Richmond alternative investment vehicles.” Assets in mutual fund Park Partners, which acquired Olympia in 2011, retains liquid alternative investments grew 128% to $99 billion anour investment. employees.” At London the time private of the equity Richmond firm deal, Olympia had lost two-thirds of its assets in the aftermath of the suchbetween assets. October The second 2008 and saw March Crestline 2012, Investors according of to Texas acquireMorningstar the management Direct, while contracts ETFs amassed to Lyster $144 Watson billion in& financial crisis, much of it from banking and structured Co.’s fund of funds business, amounting to around $300 saidfinance the clients merger selling will place holdings the combined to raise capital. group In“in a a report better million in assets. Crestline already managed more than following the Kenmar deal announcement, Fitch Ratings $6 billion in such assets. Lyster Watson is divesting the owing to scale, including “potential cost synergies.” Within business as part of a larger reorganization of its hedge fund France,position Rothschild to ultimately & achieveCie Gestion operating merged profitability” its traditional operations, including a second sale of a hedge fund beta and alternative multi-manager business with that nation’s business to mutual fund manager Van Eck Associates. HDF, to create a larger specialized

Rothschildfirst fund of HDFfunds Investment firm, Solutions, is two-thirds managers, including Carlyle Group, which took a 55% asset manager with $5.1 billion in AUM. The new company, stakeTwo private in a New equity York firms commodities cut deals specialist, for hedge Vermillionfund management unit of Rothschild & Cie Banque Group. Asset Management. The deal includes cash, an ownership owned by Rothschild. Rothschild & Cie Gestion is the asset Another European fund of funds player, Gottex Fund years. Established in 2005, Vermillion manages three Management Holdings interest and contingency payments paid over five-plus

, acquired Hong Kong-based varied commodities funds with $2.2 billion in AUM. Noting 22 that “global, secular trends are fundamentally reshaping” in 2002, Polygon has $450 million in hedge fund assets, supply and demand for commodities, Vermillion said the partnership with Carlyle “will help us maximize these minority interests in two other asset managers. The deal opportunities to deliver more alpha to our investors.” isdown in keeping substantially with Tetragon’s since the financial“growth strategy”crisis, as wellof creating Carlyle, which has made two other hedge fund acquisitions since 2010, said Vermillion will become its exclusive Dyal aIn diversified the U.S., publicly financial traded services fund firm. manager Calamos Capital Partners, bought minority stakes in two U.S. fund of Investments expanded its existing alternatives lineup by fundscommodities managers: trading Mast platform. Capital ManagementThe second firm,, a 21-year-old acquiring Black Capital, a small long-short hedge fund Pinnacle founded in 2009 by former Janus Capital Group CEO Asset Management, a commodities specialist with $2.3 credit-focused firm with $1.5 billion in AUM; and stake in an established French quantitative hedge fund, Sr.,Gary said Black. the transactionAs part of the “supports deal, Black our joined strategic Calamos roadmap as Capitalbillion in Fund AUM. Management In addition, the firm acquired a minority forco-chief delivering investment investment officer. performance Calamos CEO and John evolving Calamos, 2010 by Neuberger Berman Group, Dyal makes minority our global investment platform.” Founded more than 35 investments in established hedge (AUM: funds $5.1 withbillion). between Created in years ago, Calamos generated rapid asset growth through investments in convertible bonds, equities and high-yield second and third of about a bonds, and in particular via its highly rated Calamos dozen$1 billion such and investments $5 billion inDyal AUM. The deals represent the Growth Fund. But the company’s plans to make. Dyal is managed fortunes began to falter prior to by executives from the former Lehman Brothers who invested In a low interest rate declining by nearly half from $46 in such hedge funds as D.E. Shaw billionthe financial before crisis, starting with a recoveryAUM and GLG Partners. environment that has late at $34 billion. Alternatives In a low interest rate in 2009 and flattening out of environment that has challenged challenged insurers to insurers to generate decent account for 7% ofOverland AUM. returns, Swiss property and generate decent returns, Advisors bought a majority casualty insurer Allied World interestManagement in their at 3-year- Assurance Co. Holdings cut Swiss property and casualty old firm from Wells Fargo, a “strategic partnership” with which retained a minority private equity and hedge fund insurer Allied World Assurance share. Overland, which manager MatlinPatterson expects the new structure to facilitate fund-raising Asset Management Co. Holdings cut a “strategic $5.5 billion). The deal includes from outside investors, has a minority stake and (AUM:capital investment in the continued partnership” with private Fargo told Bloomberg the deal$2.2 wasbillion designed in AUM. to Wells realign platform. In addition, New equity and hedge fund “ownership interests” in expansion of MatlinPatterson’s a way “that is consistent will manage $500 million of manager MatlinPatterson with industry standards Allied’sYork-based portfolio MatlinPatterson over time and client expectations,” in existing and future liquid Asset Management. but denied it was driven by credit strategies. The deal, done regulatory changes. As if to through the recently established underline the point, Wells Allied World Financial Fargo subsequently acquired Services subsidiary, is designed a minority interest in Rock to diversify the parent’s earnings stream with “trusted Creek Group, with the option asset management and other business leaders.” Founded to add to its stake. Rock Creek, based in Washington, in 2002 as a spinout from Credit Suisse First Boston, D.C., is a fund of hedge funds and emerging markets markets. In a second asset management deal, Allied World acquiredMatlinPatterson a minority manages stake infunds Aeolus in the Capital distressed Management and credit, 2003.investor Wells with Fargo $7 billion made in the AUM. investment The firm through was owned its a Bermuda-based investor in the property catastrophe by Carlyle Group until a management buyout in reinsurance and retrocession market with $1.7 billion in boutique model. Affiliated Managers division, which pursues a multi- Tetragon Financial Group, a credit investor based in One of the largest U.S. public pension funds, Teacher Retirement System of Texas, made a $250 million AUM. investment in the world’s largest hedge fund, PolygonGuernsey Management and traded on, inthe a NYSE$100 millionEuronext deal. in Amsterdam,Founded Bridgewater Associates, in a sign of the tighter bonds acquired its affiliated parent, London hedge fund manager Investment Management Industry Review | 2013 23 some institutions are securing with their managers. In return, TRS gained an equity stake that will also confer based Cuyohoga have a prior relationship as limited partners inwith several $4.5 billionlower-middle-market in AUM. Private funds. Advisors Private and Cleveland-Advisors said the acquisition allows it to provide investors with “a broader Bridgewatera percentage of Pure the hedgeAlpha fund’smacro profits,fund generated including a the$14 spectrum of private equity structures, including primary billionattractive gain fees for paid investors, by institutions. while founder In 2011, and theco-chief flagship fund investments, secondary investments and direct co- investments.” In 2011, Cuyohoga was spun out from KeyCorp, according to Absolute Return the Cleveland bank. BlackRock crossed the Atlantic to acquire sixinvestment months ofofficer 2012, Ray however, Dalio took the fundhome had $3.9 a negativebillion, Swiss Re Private Equity Partners, the European private return. In a letter to clients, Bridgewater magazine. In said the thefirst deal is equity and infrastructure fund of funds business owned by Swiss Re. The group, with $7.5 billion in assets, doubles the amount of client Private Equity Fund Transactions commitments in BlackRock’s existing private equity fund of funds business and expands the product lineup in its 2008 2009 2010 2011 2012 growing alternatives unit. In addition, Number of Transactions 7 6 12 5 9 the deal provides access to European Combined Value ($M) $197 $871 $2,403 $464 $575 institutional clients served by Swiss Re Total Seller AUM ($B) $9.6 $3.6 $54.5 $65.8 $31.6 Private Equity. Average Deal Size ($M) $28 $145 $200 $93 $64 Average Seller AUM ($M) $1,369 $594 $4,543 $13,158 $3,511 York’sThere wereRohatyn two Grouptranspacific acquired deals a 60% Source: Berkshire Capital Securities LLC stakeinvolving in CapAsia U.S. buyers., a Singaporean In the first, middle-New

on infrastructure projects in emerging part of a 10-year plan “to transition Bridgewater from Asian markets outsidemarket China privateand India. equity For firmRohatyn, that focusesan being run by Ray, to being independent of Ray.” Britt emerging markets investor, CapAsia marks the second Asian deal saw FLAG Capital Management of Connecticut acquire 3.5%Harris, of chief its $111 investment billion in officer assets at in TRS, hedge served funds, as slightlyCEO Squadronprivate equity Capital firm it has acquired in two years. The second belowat Bridgewater its 4% target. in 2005. In its latest fiscal year, TRS had , a Hong Kong private equity fund of funds createsmanager scale with in $1.5 Asia, billion with thein AUM. two companiesFor FLAG (AUM: planning $4.7 an that underline the industry’s gradual transformation Asia-focusedbillion), a private fund equity of funds. and Squadron venture capital was owned firm, theby Search deal fromThere the were traditional similar deals partnership involving model private into equity one where firms Investment Group companies are publicly traded or incorporate new outside in 2006 to provide a, thevehicle Hong for Kong outside family investors office of to Duty tap the Free deal, the Florida State Board of Administration and an Shoppers founder Robert Miller.v Search created Squadron institutions into their partnerships. In the highest-profile 10% stake in Rhode Island-based Providence Equity office’s private equity team. Partnersunidentified. FSBA, sovereign which wealthhas several fund hundred acquired million a combined dollars invested with Providence, reportedly paid $150 million for its share. Providence, with $27 billion in assets, plans to use the capital for such growth initiatives as global expansion. In 2010, FSBA made a direct investment in Lexington Partners. London-based private equity giant CVC Capital Partnersanother established also cut a deal U.S. privateto sell a equity 10% stake firm, to three sovereign wealth funds, including the Government of Singapore Investment Corp. and the Kuwait Investment Authority. CVC will use the capital for new funds and to expand its infrastructure and credit businesses. New York Life made three acquisitions last year (see Money Management), including one for Cuyohoga Capital Partners, a value-oriented secondaries and fund of funds

Virginia-basedprivate equity firm Private with Advisors more than, an $800 alternative million investorin AUM. The insurer cut the deal through one of its boutique firms,

24 Partners

H. Bruce McEver Ted J. Gooden Richard D. Miles 212 207 1001 212 207 1043 212 207 1830 [email protected] [email protected] [email protected]

R. Bruce Cameron Bomy M. Hong Drew R. Murphy 212 207 1013 212 207 1825 212 207 1824 [email protected] +44 20 7828 0011 [email protected] [email protected]

Caleb W. Burchenal D. Scott Ketner Mitchell S. Spector 303 893 2899 212 207 1042 212 207 1828 [email protected] [email protected] [email protected]

Richard S. Foote Jordan E. Mann Jonathan Stern 212 207 1012 212 207 1048 212 207 1015 [email protected] [email protected] [email protected]

R. Bradley Forth Ian Martin Margaret Ware 212 207 1007 +61 2 9221 2271 212 207 1823 [email protected] [email protected] [email protected]

Advisory Directors

Jamie Cayzer-Colvin George W. Morriss Patrick von Stauffenberg +44 20 7828 2828 212 207 1000 +44 20 7828 2828 [email protected] [email protected]

NEW YORK LONDON 535 Madison Avenue, 19th Floor Cayzer House New York, NY 10022 30 Buckingham Gate 212 207 1000 London, UK SW1E 6NN +44 20 7828 2828 DENVER 999 Eighteenth Street, Suite 3000 Berkshire Capital Securities Ltd. is authorized and regulated Denver, CO 80202 by the Financial Services Authority. 303 893 2899

www.berkcap.com Member, FINRA / SIPC NEW YORK LONDON 535 Madison Avenue, 19th Floor Cayzer House New York, NY 10022 30 Buckingham Gate 212 207 1000 London, UK SW1E 6NN +44 20 7828 2828 DENVER 999 Eighteenth Street, Suite 3000 Berkshire Capital Securities Ltd. is authorized and regulated Denver, CO 80202 by the Financial Services Authority. 303 893 2899