2010 | Investment Management Industry Review

accounts. The British and French negotiated similar deals. In September, Switzerland also completed the last double- taxation treaty required to remove its name from the OECD’s list of nations failing to comply with tax-sharing the Right Places information. In Italy, the government raided the local

Lookin’ for Dough in All on a tax treaty grew testy. Meanwhile, a tax amnesty led When governments in the U.S. and Europe take Italiansoffices of to Swiss declare banks $115 and billion talks in between assets held the twooutside nations the a moment to consider their future pension country, though estimates for the total amount run six and health care obligations to baby boomers, times as high. Lichtenstein, with 35,000 people and per it doubtless quickens the pulse. In the U.S., capita GDP over $100,000, cut a deal with the U.K. to close the Peterson Foundation, a fiscal watchdog, the accounts of British citizens who do not comply with figures the nation has $56 trillion in unfunded their government’s demand for full disclosure. The small obligations up the road, primarily involving principality has also engaged in similar discussions with Medicare. Among European Union nations, Germany. generous national state pension and health So it was that in 2009 the worst economic crisis since the care benefits face similar funding challenges. Depression continued to play out. It engulfed Europe’s

lucrative offshore banking industry, remade banks and In the U.S., states and localities are falling behind on their own promises to boomer public employees, having watched hundreds of billions of dollars in assets disappear in 2008-2009. Wilshire Consulting estimates Tepid Recovery that the average public pension funding ratio of assets to liabilities dropped 18 points in 2008, to 81%. None GDP Growth 2008 2009* 2010* of these stratospheric numbers even factor in the stress Advanced Economies 1.3%

Uncle Sam and John Bull borrowed last year alone to avoid U.S. 0.6% (3.4%) 1.5 on public finances from the $1.4 trillion and $290 billion Euro Area 0.3 10% and 12% of their respective GDPs. Greece, Ireland 0.4 (2.7) an economic free fall, figures that amounted to about U.K. 0.7 (4.2) 0.9 spending, with Standard & Poor’s cutting Greece’s bond Japan 1.7 and Spain were hovering around the same level of deficit 0.7 (4.4) Developing Asia (0.7) (5.4) 7.3 rating to a rocky “BBB-plus.” $1.6 trillion in the red while euro zone members as a China 7.69.0 6.28.5 9.0 In the fiscal year ahead, Washington expects to be another India 6.4 of GDP, four points above the cap set in Brussels when whole will likely ring up budget deficits equivalent to 7% Global 7.33.0 (1.1)5.4 3.1 Organization for Economic Co-Operation and Development (OECD),the economic total borrowingunion was formed.is projected Among at $32 nations trillion in thefor World Trade 2009-2010, and the International Monetary Fund (IMF) Volume (goods & svcs.) +3.0% (11.9%) +2.5%

* Projected figures the world’s leading industrialized nations will Source: IMF continue running large deficits through at least 2014, Under such circumstances, what’s a politician to do? Start including nearly 7% of GDP in the U.S. and U.K. shrewdly independent nation of Switzerland comes in. insurers, helped undo the postwar dominance of Japan’s looking for money — and fast. That’s where the placid but Liberal Democratic Party in national elections, and forced governments to borrow money on an unprecedented scale shieldWith a money wink and from a nod the fromtaxman nations or the around law. No the longer. world, Uncle it Sam,has long John operated Bull and as host a haven of others for wealthy have come people calling seeking from to for its ability to generate tax revenues and jobs, instead world capitals. enduredin peacetime. the wrath The financial of once-friendly sector, only politicians. recently revered The British and French governments will apply a 50%

The result: the Swiss blinked, and another offshore private timebanking agreed center, to provide Lichtenstein, the names followed. of large Under numbers pressure of voluntarilytax on banks’ adopted bonus apayouts. restrictive In Germany, code recommended where the by from the U.S., last year the Swiss government for first UBS thegovernment Group of demurred20 nations. on The a special U.S. placed tax, top pay bankers restrictions

Americans (some 4,400) suspected of hiding money in

Berkshire Capital Securities LLC | 1 on companies it bailed of its foreign exchange out and the House policy. The Economist in December passed wondered aloud in a new and more Lost Decade November whether regulatory scheme. restrictive financial Major Stock Indices Close 2009 v. 2008 Close 2009 v. 1999 the triple-A rating of 12/31/09 (%) 12/30/99 (%) Obama did his part by Moody’sTreasury Investors bonds “could President Barack Dow Jones Ind. Avg. Servicebe in jeopardy” spelled outwhile S&P 500 scenarios in December duringreferring an to interview “fat-cat 10,428 18.8% 11,497 (9%) under which the U.S. bankers on Wall Street” Nasdaq 1,115 23.5 1,469 (24) and the U.K. could news show. The both lose that pristine FTSE 100 (U.K.) 2,269 43.9 4,069 (44) with the “60 Minutes” rating. in a charitable mood DAX (Germany) 5,412 22.1 6,930 (22) American people aren’t either, with more than Nikkei 225 5,957 23.8 6,958 (14) half the respondents in economicAs the year picture drew to a China (Shanghai “A”) 10,546 19.0 18,934 (44) a December Bloomberg remainedclose, the Americandismal if National Poll saying the 3,437 79.8 N/A N/A apparently stable, with Dow Jones U.S. Industry Index (% gain/loss 2009 v. 2008) an additional 85,000 are only interested in Financials 12.8% job losses in December enrichingmajor financial themselves firms Asset Managers 29.2 dampening hopes the bailouts were a bad Banks might be turning a and 64% opining that idea. corner.that the By labor year’s market end, Life Insurance (4.6) unemployment still arrows, some titans of Investment Services 16.756.2 hovered above 10%, Amid the slings and Source: Bloomberg with estimates of underemployment PRfinance consultants were clearly and adding six more lobbyists.taking cues Goldman from their points to that number. Sachs, whose CEO Michigan, with an last September that rate of 15% and publicLloyd Blankfein dismay over said anofficial auto unemployment industry growing again in the third quarter of on government life Although the U.S. economy began support, appeared bank compensation 2009 after four negative quarters, the mired in a localized was “understandable version of the Great prevailingand appropriate,” political Depression. Several windsacknowledged by announcing the than anticipated. states weren’t far in December that its annualized GDP gain of 2.8% was weaker behind, including top executives would once-unassailable forego cash bonuses California, with a in 2009. In a speech 12.5% unemployment that same month at West Point, Jeffrey Immelt, CEO of rate and a deeply troubled state government.

General Electric — whose large financial arm fell victim thirdThe overheated quarter of 2009,real estate nearly market one-quarter that helped of homeowners spawn the to the credit collapse — proclaimed an end to a “difficult mindedness, a good trait, was replaced by meanness and withfinancial mortgages meltdown had remained negative equity, problematic according as well. to real By the generation of business leadership” in which “tough- greed, both terrible traits.” heavilyestate intelligence leveraged commercial firm First American real estate CoreLogic. sector, where the The crisis in year two also quickened the steady shift in Observers were also keeping their eyes peeled on the global financial power toward an increasingly confident level since 1993, according to Real Estate Econometrics. Asia, and in particular an ascendant if frothy China. default rate reached 3.4% in the third quarter, the highest Indeed, as America’s current account deficit merged with as the world’s reserve currency became a hot topic. China, third quarter of 2009 after four negative quarters, the Washington’sa mushrooming main budget creditor, deficit, felt the compelled future of to the announce greenback in Although the U.S. economy began growing again in the The world economy wasn’t doing much better, but as in | | annualized GDP gain of 2.8% was weaker than anticipated. 2December that the dollar remained the “main component” 2010 Investment Management Industry Review the U.S. appeared to be stabilizing. Europe’s largest At the same time, member states, Double-Digit Dip private capital to pay third-quarterAmong the 30 GDP OECD banks are raising

suchback aid,government or simply to (lessfigures than in aggregate1%) since strengthenaid, to avoid balance taking showed the first gain Value of Announced Deals ($ billions) 2008 2009 2009 v. 2008 Mergers & Acquisitions, All Industries sheets. These include (%) BNP Paribas, DnB globalthe first GDP quarter declined of Worldwide $2,073 (28.2%) NOR (Norway’s 1.1%2008. lastThe year, IMF withfigures Societe U.S $720 (22.0) world trade off 12%. $2,887 Generale and The U.S., the world’s Europe $1,169$924 $580 UniCreditlargest bank),. RBS and shopping center, Asia-Pacific $424 (2.5) another government- (50.4) Lloyds drop in imports in the Number of Announced Deals 2008$435 2009 Banking Group, are 10registered months athrough 27% Worldwide 38,325 (6.6%) alsosalvaged planning firm, to tap October, according to investors for capital. U.S. 41,045 7,585 (19.1) For 2010, the IMF Europe 13,8639,371 13,063 (5.8) sector returned, projectsgovernment a 3.1% figures. gain in Asia-Pacific 10,383 (0.5) too,Profits in somein the cases financial global GDP, but trade providing an 2009 M&A (misc) is expected to increase 10,439 embarrassment of just 2.5%. Gov’t % of investment value = 16.6% (record) riches. Goldman Sachs followed up a record data notwithstanding, second quarter by theThe second weak economic half of PrivateFinance equity sector investment % of target valuevalue == $134B20% (2006 record = $738B) delivering earnings 2009 did unveil some Source: Thomson Reuters of $3.2 billion in the hopeful developments third quarter, with particularly robust results in its trading in the financial sector. operation. Morgan hadAs of repaid December, about U.S. Stanley was in the two-thirdsfinancial institutions of the

timeblack since in the the third third 2009$245 billionvia the inTroubled capital quarter offor 2008, the first with they received in fiscal million. JPMorgan theAsset $10 Relief billion Program each Chaseearnings saw of earnings$757 borrowed(TARP), including by Goldman Financial institutions from Asia- of $3.6 billion in the Sachs and Morgan Pacific continued flexing their muscles, third quarter, aided Stanley. In December, Western institutions forced to quit asset by strong results following a $19.3 pickingmanagement up valuable in the assets world’s from leading ailing from its trading billion share offering, Citigroup also Bank of America paid reported its third straightdesk. quarter billion),off the TARP as did funds Wells growth market. following its near- Fargoit borrowed ($25 billion) ($45 deathof meager experience. profits and Citigroup ($20 billion). Credit Suisse, Deutsche In Europe, government intervention appears to have been Bank and HSBC also delivered solid earnings. Major European banks such as similarly effective, but some companies are paying a price In 2009, the asset management industry continued a in forced divestitures. For example, London has told Royal Bank of Scotland (RBS) it must sell its insurance operation and hundreds of its retail branches and the EU has directed theirsignificant asset ifmanagement expected realignment, arms as for the the events institutions as notable ING Groep for the Who’s Who listing of banks and insurers divesting

to split its banking and insurance operations. buying. Although dealmaking in the first quarter of 2009

Berkshire Capital Securities LLC | 3 tracked the subdued pace of late Investment Management Transactions emerging2008, activity equilibrium picked up between as the year buyers andprogressed. sellers on In pricing,part, that as reflected concerns an 2005 2006 2007 2008 2009 Majority Equity 115 about financial collapse ebbed. For Minority Equity 9 12 26 29 5 banks and insurers, divestitures also 124 150 166 149 managersreflected the are pressure also feeling to raise the squeeze capital Management Buyout 6 5 12 21 15 and reorganize quickly. But pure asset Total 139 167 204 199 135 Consulting Group survey of asset managersapplied by worldwide recent events: showed A Boston average Total Transaction Value ($B) $31.7 operating margins dropped four points

Total AUM Changing Hands ($B) $19.3 $47.2 $37.4 $16.3 $3,300 Source: Berkshire Capital Securities LLC $1,202 $2,340 $1,155 $1,148 between 2007 and 2008 to 34%, the lowest level in five years, but BCG also noted that “the differences among asset managers were substantial.” Not surprisingly, financial institutions assetsfrom Asia-Pacific from ailing continued Western institutions flexing forcedtheir muscles, to quit assetpicking management up valuable in the

Who’s Selling Kong’s Pacific Century Group acquired world’sAIG’s external leading asset growth management market. Hong Number of Transactions by Sector as % of Total business, paying $500 million for $89 Oversea-Chinese Bankingbillion in Corp.AUM and capitalized operations on the in 32 woes 4% 13% 19% ofmarkets. ING, acquiring Singapore’s the Dutch insurer’s 2% 39% 48% billion. In Japan, Sumitomo Trust & Asian private banking assets for $1.5 35% Banking Co. paid $800 million for 40% Nikko Asset Management, Japan’s third- largestCitigroup’s fund 64% manager. shareholding in 2008 2009

Value of Transactions by Sector as % of Total excessesThe largest of theAustralian subprime financial investing 4% 1% frenzyservices and firms having — having raised avoidedmore than the 2% 10% $80 billion last year in government- 16%

andguaranteed insurers debt to acquire — took selected advantage assets of 34% 54% 79% designedthe problems to strengthen of a several operations global banks in

the largest pure asset management crosstheir domesticborder deal market involving and Asia. an But 2008 2009 U.S., as Sydney-based Macquarie Institutional / Mutual Fund Real Estate GroupAustralian buyer took place in the Wealth Management Private Equity / Other Philadelphia’s Delaware Investments, paid $428 million to acquire Source: Berkshire Capital Securities LLC Lincoln Financial Group forowned its specialization by TARP-recipient in infrastructure investments, made. Macquarie, several cross known border acquisitions last year to expand its

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4 Investment Management Industry Review asset management, Outside of the advisory and investment Barclays megadeal, thereBlackRock- was only one businesses. Who’s Buying banking transatlantic deal, In total, there 2005 2006 2007 2008 2009 were 135 asset involvingother significant Bank management Institutional / Mutual Fund 34 of New York transactions in Mellon Wealth Manager 32 31 30 48 23 2009 valued at million purchase Financial 166 1824 2238 2829 16 ’s $375 by another cross MBO 6 5 12 21 15 Group’s Insight $31.7 billion, led Investmentof Lloyds Banking Bank 14 BlackRock’s $13.5 Management unit, the third-largest billionborder acquisitiondeal — Securities Firm 35 39 43 34 11 of Barclays’ asset manager of U.K. Trust Company 9 14 16 4 8 management pension funds. The business, Barclays Real Estate Manager 8 6 4 7 5 largest European transaction was Global Investors. Insurance Company 4 6 14 2 2 The deal created a massive all- Other 16 11 18 19 7 the industry’s 7 13 7 7 French affair, as Goliath, with $3.2 Total 139 167 204 199 135 Credit Agricole and Societe Source: Berkshire Capital Securities LLC by year’s end Generale extended andtrillion particular in AUM strength in index relationship funds and exchange establisheda brokerage in traded funds, via 2008 to merge Barclay’s large their asset iShares business. In total, there were 135 asset management management Barclays, which units and create retained a share Europe’s third- of the combined BlackRock’s $13.5 largest money $6.6 billion in cash billiontransactions acquisition in 2009 of Barclaysvalued at ’$31.7 asset billion,management led by $900 billion). thatbusiness, allowed took it into another cross border deal — manager (AUM: avoid a government business, Barclays Global Investors. bailout. With its shareholding,Credit Agricole, said combined heft, thewhich transaction took a 75% was driven by create an internal tradingBlackRock platform plans tofor client transactions. “industrial logic, There were two billion-dollar transactions in the U.S. seeking to combine production efficiency with the power Coming off a year tarnished by the Bernard Madoff that were all-domestic affairs, one involving the much- of distribution.” anticipated sale by Bank of America of its Columbia Management normally busy wealth management sector registered Ameriprise Financial scandal, poor returns and declining profitability, the equity and fixed income business, to But that changed in the second half, primarily driven just a small number of deals in the first half of 2009. In the second transaction,. It marked Morgan the Stanley second sold fund its retailmanagement asset management purchase for business, Ameriprise primarily in as many consisting years. Commerzbank, under government pressure to reorganize by transactions in Europe, where bailout beneficiary of the Van Kampen fund group, to Invesco. Morgan its business, was particularly active. The German bank cash. Importantly, both deals incorporate distribution operation and the venerable Kleinwort Benson business Stanley walked away with a stake in Invesco, on top of indivested the U.K. six The private largest banking wealth units, transaction including in Europeits Swiss Morgan Stanley Smith Barney saw Deutsche Bank agreements, with Ameriprise gaining access to BoA’s Sal. Oppenheim jr. & Cie. and network and Invesco to the make a $1.9 billion purchase of brokerage unit. Similarly, BlackRock can sell Barclays’ InLuxembourg the second-largest private bank deal, Julius Baer scooped up ING’s iShares through the brokerage arm of BoA/Merrill Lynch emerge as the clear market leader in the German market. (BoA is BlackRock’s largest shareholder). Swiss private banking business for around $510 million.

Berkshire Capital Securities LLC | 5 * * *

America, Barclays, Citigroup, Commerzbank, ING, Lloyds mericans are feeling glum these days. In a survey by A ownBanking issues, Group namely and Morgangrappling Stanley. with diminished Pure asset assetmanagers bases Pew Research Center released in December, about half lacking significant scale and/or a strong niche have their of those interviewed said the country should “mind remains an ever-present issue. its own business” — 20 points above the percentage and profitability. The challenge of generational transition who stated that opinion in 2002 — and 41% said the country plays a less important role as a world leader Although dealmaking ebbed toward the end of 2008 and than it did a decade ago. In a Wall Street Journal/ buyersinto 2009, and in sellers tandem emerged with the more financial agreeable scare, over it picked pricing. up NBC News poll, two-thirds of respondents indicated steam in the second half of 2009 as markets stabilized and they aren’t confident their children’s lives will be this year, we expect that the pressures on asset managers better than their own. Given the challenges the nation willBarring drive the buyers return and of asellers major to economic the bargaining conflagration table in faces in a two-front war abroad and on the economic front at home, the responses are not surprising. They also conjure reminders of the malaise that struck significant numbers. the nation in the 1970s, as it confronted the Vietnam War, the Watergate scandal, the oil crisis and double- Wealth Management digit inflation.

Following an unusually quiet first half of In truth, while the news last year was bad, it could have 2009, the chatter about potential wealth been a lot worse. The government, through decisive action management deals began to pick up by by the Bush and Obama administrations and the Federal the summer and fall, along with a flurry of significant distress sales in Europe and Asia. economic collapse. Salvation came at a price, however, and In the third quarter, Royal Bank of Canada Reserve, appears to have averted a potential financial and said it was seeking a U.K. firm as part of its expansion plans. Barclays, having shed that’s part of what’s making Americans nervous. The 2009 its asset management unit, said it could highfederal in thedeficit years — ahead,$1.4 trillion, will place or 10% a heavy of GDP burden — combined on the absorb a company the size of the newly with deficits that are projected to remain stubbornly independent Julius Baer private bank. slice of the federal pie, presumably crowding out other “There could be a major transformational spending.economy. Debt service alone will take up an ever larger buy for us,” Gerard Aquilina, the head of This is occurring just as the government faces the daunting Barclays’ international private banking unit, said at the Reuters Global Wealth Management Summit in October. largetask of sections providing of which Social areSecurity not predisposed and Medicare to embracebenefits to a baby boom generation that has known little privation and sacrifice. In short, the U.S. is in a pickle and the American Is something fundamental changing in the U.S. both people know it. economically and spiritually? Or will old-fashioned Julius Baer, which in July indicated that it wanted to beING “an Groepactive consolidator. Credit Suisse through Group mergers threw its and hat acquisitions,” into the ring in itself? The answers to those questions will help determine October acquired the Swiss private banking assets of American entrepreneurial flair and optimism reassert Reyl & Cies, a relatively small Swiss challenges ahead. One formidable observer of the September, saying it was prepared to acquire firms that whether the nation can manage the fiscal and economic provide the right fit. Bank private bank with $2.4 billion in AUM, said it was on the American business scene, Warren Buffett, is keeping the of New York Mellon indicated it was also reviewing the gone through world wars, we’ve gone through Civil War, lookout for smaller firms that want to add scale. faith. “We’ve gone through the Great Depression, we’ve landscape for potential deals. Those sentiments were in sharp contrast to activity in the Itand doesn’t we’ve avoid progressed all the likeproblems no country but it in overcomes the world,” all he the told Business Wire in October. “We’ve got the right system. first half, when only a handful of deals were announced problems.” worldwide. Although banks were predictably constrained from buying, wealth managers were also keeping their Many diversified banks and insurers have been facing most recent Capgemini Merrill Lynch World Wealth Report number of major ones decided it was time to sell off asset powder dry in the wake of unprecedented carnage. The their own financial and operational “D-Day,” and last year a (for the year 2008) showed that the number of individuals worldwide with at least $1 million in investible assets managers in whole or part. These included AIG, Bank of declined 15% and their collective assets dropped 20%. 6 | | 2010

Investment Management Industry Review No one was spared general economic it seemed, as even pressures on wealth Warren Buffet’s net managers and the worth plunged $25 Wealth Management Transactions particular pressures billion, according on the offshore to the latest Forbes industry are 2005 2006 2007 2008 2009 survey of the expected to hasten world’s richest Number of Transactions 47 the consolidation people. trend. Last year, Combined Value ($B) 59 65 87 80 $5.2 But the Bernard at least, the trend Total Seller AUM ($B) $246 Madoff affair caused $6.2 $7.2 $11.6 $5.6 appeared to be favoring domestic an additional Average Deal Size ($M) $119 $284 $227 $388 $111 companies. In the chill, as many Average Seller AUM ($B) $5.2 wealthy clients $106 $111 $133 $70 marquee deal of questioned the Source: Berkshire Capital Securities LLC$2.0 $4.4 $2.6 $4.9 2009 within that due diligence their Baer acquired were applying to themarket, Swiss Julius private investments,private bankers not to mention the of ING (including value of the overall subsidiariesbanking business in Monaco and a result, wealth has experienced an ongoing series of deals in Jersey), scooping managersrelationship. spent As Although Switzerland’s private banking industry up $15 billion in most of the year recent years, the general economic pressures on focused on securing wealth managers and the particular pressures $510 million, or their client bases, AUM for around as opposed to on the offshore industry are expected to hasten adjusted for surplus expansion via capital.2.3% of TheAUM deal when acquisitions. In a the consolidation trend. enhances Julius report issued in Baer’s position as mid-2009, Wealth the third-largest Bulletin estimated that as many as half of wealthy individuals were ready to change private private bank in the Swiss market and managers during 2008. The World Wealth Report says the “leading pure private banking group,” with $160 GAMbillion abankers quarter and of investors as much aseither $1 trillion withdrew in assets assets shifted from their inHolding AUM. Just) into a separatelyweek before traded the deal, companies Julius Baer on the split Swiss its private banking and asset management businesses ( the headline in last September’s Barron’s review of top U.S. Julius Baer, which recorded a 12% increase in private firms or switched allegiances. “Who Can You Trust?” was Stock Exchange. 2009, said the acquisition will be neutral for earnings worthwealth investor managers. told “I’m Barron’s better in off reference assuming to that the allindustry. these banking AUM between the end of 2008 and June of people are only out for themselves,” one ultra high net implies current and future opportunity and consolidation, ING,per share which in was 2010, bailed but out“strongly by the accretive Dutch government from 2011 in inAlthough 2009 the the number turmoil of in transactions the traditionally was theplacid lowest industry in eight onward, reaching a high single-digit percentage in 2012.” $1.5 billion to Singapore’s Oversea-Chinese Banking Corp2008,. whilealso sold retaining its Asian the private business banking in the businessBenelux for wasyears, less at than47, compared the $6.5 billion with an average average during of 71 theduring same the nations (Belgium, Luxembourg and the Netherlands). five-year period through 2008. The value, at $5.2 billion, (See Cross Border for more information on this deal and three wealth management-related deals announced by hasfive enduredyears, despite its own several trials, large between deals the in Europepressure and for Asia- more National Australia Bank.) In the second quarter, prior transparencyPacific. One notably from the active U.S. market and Europe was Switzerland,on its lucrative which to the ING deal, Julius Baer acquired Milan-based Alpha SIM management business in Italy. crownand massive jewels, offshore UBS. private banking industry and the (AUM: $560 million) in a bid to strengthen its wealth financial and investigatory squeeze on one of the nation’s government, Commerzbank divested numerous private experienced an ongoing series of deals in recent years, the As part of its massive bailout deal with the German Although Switzerland’s private banking industry has Vontobel Group banks in Europe last year, including two in Switzerland. Swiss bank acquired the Commerzbank Berkshire Capital Securities LLC | 7 Cramer & Cie; and Basler Kantonalbank acquired AAM Privatbank branded private banking business, adding $4.4 billion pricing was not disclosed, observers speculate the The largest deal in the wealth management sector involved in AUM to the $24 billion it already managed. Although , with $3 billion in AUM. business may have fetched $150 million. Vontobel said the Deutsche Bank’s agreement to acquire Sal. Oppenheim Jr. & Cie businesses its plans to divest, such as an asset servicing deal will “strengthen its market presence in Switzerland for $1.9 billion, including $430 million for several in shares. Based in Luxembourg and founded the same The largest deal in the wealth unit. Deutsche Bank said it retained the option of paying management sector involved year George Washington became president (1789), Sal. Oppenheim adds $190 billion in AUM to the $245 billion Deutsche Bank’s agreement to Deutsche Bank already managed and gives the German acquire Sal. Oppenheim Jr. & Cie bank “undisputed leadership” in the German wealth management market, with $130 billion in AUM. In selling for $1.9 billion out, Sal. Oppenheim was coming off a difficult 2008, when it suffered its first loss since the postwar years, largely due to trading losses of $420 million. Stefan Krause, chief financial officer for Deutsche Bank, said the acquisition our“improves portfolio our with access the tostrong the ultra and hightraditional net worth Sal. individual and client segment and family offices by complementing operate under its name. Oppenheim brand.” Sal. Oppenheim will continue to CEOwhile Herbert … broadening Scheidt its told international Reuters the client company base.” had More the than a month after the Commerzbank deal, Vontobel the number of high net worth individuals declined 19%, theIn the deals U.S., were where small Capgemini in size and Merrill number. Lynch In figures the largest that resources to make additional if smaller acquisitions. In the first half of 2009, private banking accounted for 14% included management purchased First Republic Bank of pretax profits at Vontobel, which derives most of its transactionfrom Bank of by America AUM, a group for a reportedof private $1 investors billion. Privatethat LGT Group earnings from investment banking. Colony Capital and General Atlantic together under pressure from European governments, acquired of Liechtenstein, another offshore market equitythrough firms investment funds they manage. First Republic inherited as part of the larger Dresdner acquisition in acquired around 50% of the San Francisco-based bank 2008.the Dresdner The acquisition Bank Swiss nearly operation doubles that LGT’s Commerzbank Swiss business, services and manages $15 billion in assets in its wealth provides a mix of personal and commercial banking adding $9 billion to the $10 billion in AUM the company management unit. BoA gained First Republic as part of already managed in that market (LGT’s worldwide AUM rose to $85 billion). The company said the deal strengthens its “foothold in this important financial center considerably” while increasing its penetration in several emerging markets. a group of private investors that Reuschel & Co., to CommerzbankHamburg-based made Conrad four Hinrich other divestitures, Donner Bank selling; its Belgian Inincluded the largest management transaction purchased by AUM, its regional German private bank, Switzerland’s Zurcher Kantonalbank; and its venerable First Republic Bank from Bank of private bank to management;Kleinwort Benson its Austrian, to Brussels-based private bank to America for a reported $1 billion. RHJ International. RHJ, which paid U.K. private bank, private equity firm services$370 million deals, for including Kleinwort, asset said managers. it will use Kleinwort the acquired firm as “an overarching brand” for additional financial its acquisition of Merrill Lynch, which itself acquired the

Benson has $34 billion in assets under administration and in government aid and was saddled with bad investments GenSpring Family Offices of Palm Beach, Fla., management. Commerzbank, which received $26 billion bank in 2007. extended its footprint in the West by purchasing multi- Ambitious Epic Advisors, its fourth acquisition since infrom 2010. its ownThere account were a as couple well asof fromsmall Dresdner domestic Bank, Swiss said in the third quarter that it could become profitable again deals of note: Norinvest Holdings acquired Banque de clientsfamily officein 11 Western states. John Elmes, a senior partner Patrimoines Privés Genève 2007. Founded in 1991 and based in Denver, Epic serves Banque , adding $2 billion in AUM at GenSpring, told Financial Advisor magazine that his firm to its existing Swiss private banking subsidiary, 8 | | 2010 can provide the advantage of scale to multifamily offices

Investment Management Industry Review grappling with a declining asset base but steady expenses. in capital in November from original investor Summit In a separate deal, GenSpring formed a partnership with Partners and a new investor, Polaris Venture Partners, Kiaweh Capital There were several small deals involving local players Charleston, S.C.-based family investment office has a portfolio of 20 affiliates. adding scale. In Ohio, Johnson Investment Counsel to launch a family office in that historic city. acquired Mead, Adam & Co. assetsAlthough per it client serves dropped an elite 12% clientele, in 2008, GenSpring according has to not been immune to the ravages of the financial crisis, as (AUM: $350 million), a sale $16 billion in assets under advisement, with average driven by succession planning issues at Mead, Adam, a investibleFinancial Advisor. assets per The client company, of $20 founded million. inGenSpring 1989, has is SunTrust Bank, which has endured its own Boston Private Financial Holdings, an affiliate of travails. The Atlanta-based bank has been forced to tap offeringthe government’s in the second Troubled quarter Asset of 2009, Relief and Program sharply (TARP) cut its to a reorganization of its business. dividend.for $4.9 billion, raise an additional $1.8 billion in a share made five divestitures that it attributed Boston Private Financial Three were management buyouts of Holdings wealth managers, with the largest one Anotherreorganization TARP beneficiary, of its business. Three were management buyouts of, made wealth five managers, divestitures with that the itlargest attributed one involving to a involving Sand Hill Advisors. Sand Hill Advisors

, a Palo Alto, Calif.-based affiliate with California,$800 million Bingham, in AUM thatOsborn Boston & Scarborough Private said overlappedand Borel Privatewith two Bank other & private Trust. Sandbanks Hill it owns handles in Northern clients with at least $2.5 million in investible assets. The buyout was the existing capabilities of Cincinnati-based Johnson in Fiduciary Network 39-year-old firm based in Dayton. The acquisition expands backed by , which takes a cut of future Columbus and Dayton. Johnson, which received financing cash flows in return for a passive, minority investment. from private investors for its first acquisition in 20 years, Francisco“We’re happy Business to have Times. our folks own direct stakes in has $4 billion in AUM, including nine mutual funds it the business,” Sand Hill CEO Jane Williams told the San operates under its corporate name. “The breadth of our In the second deal, Boston Private sold its interest in Johnson,firm allows president us to deliver of Johnson additional Investment comprehensive Counsel. wealth Boston Private Value Investors management services to Mead, Adam clients,” said Tim In Pittsburgh, BPU Investment Management added $100 itself Granite Investment Advisors, again, is aciting New “overlap”Hampshire- with other affiliates in New England. BPVI, which renamed by acquiring Paragon Wealth Management. In the Kansasmillion inCity AUM area, to Barber the $650 Financial million it Group already managed basedRINET institutional Co., acquired and high for net $6 worthmillion manager in cash. Bostonwith $460 acquiring Kasper Steck Wealth Management, creating a Privatemillion inalso AUM. sold The Florida’s third buyoutGibraltar involved Private another Bank &Boston Trust bulked up by firm, (see Mutual Funds/ our capabilities and geographic reach by combining our Institutional for information on the fifth deal). In addition company with $700 million in AUM. “We aim to broaden (AUM: $1 billion) to private investors services,” said Barber Financial, which in 2008 began a investment from Carlyle Group in 2008. TTC Holdings acquired Austin, Calvert to TARP funds, Boston Private received a $75 million regionally syndicated financial advice radio program. In another management buyout from a larger parent, the & Flavin Management Co. from parent Waddell & principals at WealthTrust LLC of Charlotte, N.C., acquired ReedIn San Investment Antonio, WealthTrust Advisors, founded in 1981 and, a deal acquired that merges by Waddell the fixed & Reed income in 1999, LLC,their founded firm from in Nashville-based 1989 as James M. Myers Research and willcapabilities continue of to TTC operate with Austin’sunder its equity name focus.as a subsidiary Austin, whose holdings include 11 other affiliates. WealthTrust of TTC. Waddell & Reed said the deal “provides the acquiredKingfisher in C2004apital by WealthTrust Advisors, has $300 million in AUM. The owners, who rebranded their company opportunity for both firms to effectively pursue core business initiatives.” In its 2008 annual report, Waddell & it was better for us ,to told become Private independent Asset Management again, with that in order to “pursue the ideas we were generating internally, Reed noted that its institutional asset flows (including the high net worth business) have been “negatively impacted a year and a half, Focus Financial Partners no oversight from an outside party.” After an absence of states.by underperformance” TTC manages $1.5 at billionAustin in assetsthe last through several a years. Austin manages $640 million in assets for clients in seven steppedJoel back subsidiary, The Trust Company. Isaacsoninto the marketplace & Co. and LLBH in the Private fourth Wealthquarter Managementto make two . Salient Wealth Management and Friedman & Associates, Four-year-oldinvestments in Focus, the New which York received metropolitan a total area, of $50 in million

Berkshire Capital Securities LLC | 9 to form Salient Friedman Wealth Management, with already ruled in favor of investors in a similar case (Gallus two established firms in the San Francisco area, merged a case the court heard in November. A federal court has Events in 2008 also led retail and institutional investors California,more than Burr$600 Pilgermillion Mayer in AUM joined and “deeper forces with capabilities Vista et al. v. Ameriprise Financial). Wealthand access Management to resources.” In a second merger in Northern institutionalto question the investors value of moved active assetsmanagement. from active A survey to passive by Vista Wealth Management to create a firm with more than $500 Greenwich Associates last year indicated that one in five million in client assets. The companies said the new firm, quarters of 2008, although the researcher notes the trend , provides clients with “added products, compared with 4% in the third and fourth depth and expertise.” Investments reported that index fund assets worldwide may prove fleeting. In the first half of 2009, Pensions & U.S., index funds accounted for 13% of all equity funds in among the 48 asset managers it surveyed rose 11%. In the

Pimco has built a reputation as one of the billion2008, up in from2008 11.5%(though in overall 2007. Low-cost assets declined), exchange continued traded savviestInstitutional/Mutual investment firms in the U.S., Funds its funds (ETFs) in the U.S., which had record inflows of $176 profile enhanced by witty and insightful November 2009. their gains last year, reaching $738 billion in AUM by commentaries from its media-friendly That tilt toward passive investing played into the largest managing director, Bill Gross. Over the last deal of 2009 and in the history of the asset management couple of years, with investors fleeing equity industry, as BlackRock acquired Barclays’ largely index- funds, the company’s specialization in bonds driven asset management business for an initial price and the performance of those funds have of $13.5 billion, a value that rose to $15.2 billion by the helped burnish the corporate image. time the deal closed in December, owing to the increase in iShares ETF business, was one BlackRock shares. The BlackRock-Barclays deal, including Pimco’s actively managed funds netted more money the British bank’s coveted inamong particular many soughtsignificant to reorganize transactions operations involving and mutual secure according to Strategic Insight, and by the third quarter of capitalfund and by institutional selling off those businesses, operations. as banks and insurers than any of its competitors in stocks or bonds in 2008, In total, there were 65 transactions valued at $25.1 billion 2009 the company had $940 billion in AUM (its flagship involving institutional and mutual fund managers in 2009, asTotal a whole Return were fund a accountedrecord $255 for billion, $186 billion).compared In thewith first just three quarters of 2009, inflows for bond funds in the U.S. compared with 77 worth $8.7 billion in a very active 2008. $3.8 billion for stock funds, according to Morningstar. Significantly, dealmakers in these two sectors were busy was planning to expand into active equities, it created a So when Pimco acknowledged in the fall of 2009 that it In acquiring Barclays Global buzz among industry observers and players. Although Motley Fool wondered whether a Pimco stock fund might Investors be “something to avoid” and merely “a cynical grab for the world’s largest asset manager, assets,” it also allowed that Pimco “might be taking a smarter route to expanding its offerings — by lifting out an , BlackRock became by far Will Pimco’s counterintuitive bet on actively managed entire equity management team from another fund shop.” stateequities of active prove equityas prescient fund management, as the firm’s earlythe industry warnings must doublingits nearest its AUM competitors. to an astonishing beabout hoping the overheatedso. Equity mutual property funds market? of all Giventypes, theleft currentreeling $2.7 trillion, about twice the size of from the 2008 meltdown that eviscerated nearly $2.8 trillion in assets in the U.S., remain under considerable pressure. In a continuation of the long-term trend, the fees and expenses paid by investors in equity funds fell another transactions during a period when even the generally compared with 122 basis points in 2003, according to the robustin the first wealth half sector of 2009, could securing muster more only than a handful three-dozen of deals. two basis points from 2007 to 2008, to 99 basis points, Investment Company Institute. The U.S. Supreme Court In acquiring Barclays Global Investors could add more pressure to mutual fund fees, depending by far the world’s largest asset manager, doubling its , BlackRock became on its decision in that matter in Jones v. Harris Associates, AUM to an astonishing $2.7 trillion, about twice the size 10 | | 2010

Investment Management Industry Review of its nearest competitors. (By the time the deal closed in December, to $3.2 trillion.) This includes BlackRock said AUM had increased ETF business in the U.S., with some taking command of the dominant 2005 2006 2007 2008 2009 InstitutionalNumber of Transactions / Mutual Fund Transactions 65 $300 billion in AUM. The combined Combined Value ($B) $25.1 firm, operating in 24 countries, will 56 49 62 77 retain BlackRock’s institutional bias Total Seller AUM ($B) $7.9 $34.7 $15.1 $8.7 $3,011 The(80% iShares of AUM), business though will Barclays account Average Deal Size ($M) $836 $1,920 $718 $683 $386 foradds close a significant to 60% of retail the combined component. Average Seller AUM ($B) $140 $708 $244 $113 $46.3 with the ETF industry projected to Source: Berkshire Capital Securities LLC$14.9 $39.2 $11.6 $8.9 registerfirm’s $526 annual billion growth in retail as high AUM, as

transaction, consisting mainly of Morgan Stanley’s Van combination25% in the next of active three andto five passive years, investment products Kampen willaccording be unsurpassed, to Bernstein and Research. will enhance “The our ability to offer comprehensive solutions and tailored portfolios funds, adds $119 billion in AUM to the $416 billion Invesco already managed and makes the Atlanta- based firm a top-10 U.S. fund manager, with $122 billion in to institutional and retail clients,” said Laurence Fink, funds in that market. The addition of the Morgan Stanley chairman and CEO of BlackRock. 56%.assets marks a slight shift in focus for Invesco’s business, Merrill Lynch acquired ’s asset management business for with the proportion of retail AUM climbing seven points to The$9.8 acquisitionbillion. Merrill, comes as welljust threeas parent years Bank after of BlackRock America , Martin Flanagan, president and CEO of the perennially channelswhose share for iSharesin BlackRock funds. dropped Barclays, from which nearly retained half to acquisitive Invesco, said the deal will “enhance” his firm’s 34% after the BGI deal, represent important distribution manages“ability to the deliver AIM meaningfuland PowerShares solutions” funds to amongits clients others, and much-needed cash and a near-20% shareholding in the also“better reached position a distribution [it] for long-term agreement success.” with Invesco, the Morgan which its private bankingBlackRock business, Global received Investors $6.6 billion. Founded in in Stanley Smith Barney combined firm, told Barron’s. Morgan Stanley, brokerage which unit. received “I’m a believer $500 that 1988, BlackRock has seen itsCVC AUM Capital skyrocket Partners since agreed 2000, you need to be big enough” to remain relevant, Flanagan when it managed a little over $200 billion. In the first $1 billion, retained its institutional asset management quarter, private equity firm million in cash and a 9.4% shareholding in Invesco worth deal.to pay $4.4 billion for the iShares business; it received a break-up fee of $175 million as a result of the BlackRock business (AUM: $267 billion) while noting that the There were several other cross border deals of note transaction terms provide it with a stake in a “formidable new contender in the retail space.” Pacific Century Group’s acquisition of a portion of AIG’s much-anticipated sale of Columbia Management’s equity involvingasset management divestitures business, by banks a $500 or insurers, million includingdeal that The second all-U.S. megadeal involvedAmeriprise Bank Financial of America’s, for between $900 million and $1.2 billion in cash (based on Macquarie Group of and fixed income business, to gives the Hong Kong-based investment firm $89Delaware billion in ManagementAUM and operations, owned in by 32 Lincoln markets. Financial Group, net assets flows at Columbia prior to closing). Ameriprise Australia paid $428 million for Philadelphia’s largestgains $165 manager billion of in long-term AUM (56% funds in equity in the funds),U.S. The bringing securing a foothold in the U.S. Bank of New York Mellon dealits total adds AUM the toColumbia $400 billion Wanger and makingand Acorn it the funds eighth- to adding $125 billion inInsight institutional Investment and retail Management AUM and , RiverSource (U.S.) and Threadneedle (U.K.) owned by Lloyds Banking Group brands. paid $375 million for (See Cross Border for more Ameriprise’s information on these transactions.), a deal that netted BNY Mellon $130 billion in AUM. Jim Cracchiolo, chairman and CEO of Ameriprise, said the acquisition, priced at seven times run-rate EBITDA, will all-domesticIn the U.S., two deals beneficiaries in the sector. of Washington’s The larger of Troubledthe two was be accretive to earnings in the first year and provides the theAsset $1.5 Relief billion Program cash-and-share (TARP) were sale the by sellersMorgan in Stanley the largest “scale and the investment performance record for us to of its retail asset management business to Invesco. The oneserve between a broad Invesco range of and investors.” Morgan StanleyThe two that companies provides also reached a five-year distribution deal agreement akin to the

Ameriprise with access to BoA’s network, including Merrill

Berkshire Capital Securities LLC | 11 a $900 million share offering that helped pay for the Lynch and U.S. Trust. In June 2009, Ameriprise completed mid-2008 and later postponed due to market conditions. mutual fund and hedge fund manager J & W Seligman. AMG took a 60% stake in the New Jersey-based firm, acquisition. In 2008, Ameriprise paid $440 million for with management retaining the rest, in line with AMG’s One of the larger ones was Aquiline Capital Partners’ affiliate structure. Harding Loevner said the deal allows it purchaseAdditional of domestic Connecticut’s deals Conningdropped &off Co., considerably in size. to retain its independence and culture while “providing a framework” for the eventual transfer of equity to “the next In a transaction that resulted in the merger of two Boston- generation of managers.” clientele. Conning parent Swiss Reinsurance a fixed Co. ,income which City National Corp. acquired a institutionalhas suffered majorfirm with losses $70 on billion its investment in AUM and portfolio, an insurance Lee Munder Capital Group basedbillion) institutional and combined firms, that company with Independence Investmentsmajority stake, purchased in by CNC in 2006. CNC (AUM: said the $3 sold the firm as part of a reorganization but said it will enlarged company, operating under the Lee Munder

diversify the institutional asset management capabilities There were a number of name and with $4 billion in AUM, “will strengthen and noteworthy transactions Chicago-basedavailable to our asset clients.” management Lee Munder, holding an equities company, specialist, Convergentis one of seven Capital investment Management advisory. Lee affiliates Munder of CNC’sretains

$2 billion to $5 billion range. similar transaction designed to enhance local capabilities, involving sellers with AUM in the managementa minority shareholding at Louisville-based in his 10-year-old Todd Investments firm. In a Advisors bought out their company from parent Fort Washington Investment Advisors of Cincinnati and then merged with a smaller local institutional manager, Veredus Asset Management Todd- “maintain a strong relationship with Conning as a recipient Veredus Asset Management of its services.” Started up in 2005 and based in New York, combines complementary value. The and combined growth strategies.firm, aAquiline second raisedinvestment an inaugural in HedgeServ fund of Holding $1.1 billion LP, ain hedge 2007 to In 2008, Veredus management, has repurchased $3 billion inthe AUM 50% and fundinvest and in financialfund of funds services administrator. firms. Last year,The company Aquiline ismade ownership interest of Fortis. UniCredit of Italy acquired 11 RMK Select Funds with a Jeffrey Greenberg, former CEO of Marsh & McLennan Cos. controlled by Aquiline Holdings, the investment vehicle of Boston Private Financial Holdings funds run by UniCredit’s U.S. asset manager, Pioneer Investmenttotal of $2 billion Management in AUM and. The wrapped deal was them transacted into existing with sold five of its RMK owner Morgan Keegan & Co. business.affiliates last The year largest as it involved sought tothe repair management a balance buyout sheet of Regions Financial Corporation. In weakened by the financialWestfield crisis Capital and M reorganizeanagement its 2008, Regions transferred management, the brokerage of several armtroubled of $11 billion), a Boston-based growth-equity investor that Alabama-basedMorgan Keegan bankbond funds that had begun to perform paidinstitutional $59 million firm to Boston Private, as well as a 12.5% (AUM: poorly. share of revenues over eight years. Boston Private said In Kansas City, Tortoise Capital Advisors joined with Mariner Holdings to buy out the interest in Tortoise

(SeeWestfield’s Wealth institutional Management business for more “diverges” on the Boston from Private its specialist in master limited partnerships in the energy deals.)“core strategy Guggenheim of providing Partners wealth acquired management Claymore services.” Group owned by two private investment firms. Tortoise is a traded closed-end funds as well as separately managed sector (AUM: $2 billion) and manages several publicly a(AUM: line of $13 innovative billion), ETFgaining products, entry toalthough both the some ETF thatand Tortoise, was founded in 2006 by alumni of A.G. Edwards wereretail particularlymarkets. Claymore, narrow foundedin scope in(the 2001, Sudan has and created Global accounts. Mariner, which took a majority interest in enhance our retail distribution, product development and and has $1 billion in AUM. The company said the deal Vaccine funds) were forced to close. “This transaction will “fits our long-term strategy to create a world-class asset management business.” marketing prowess, especially among financial advisors,” Brown Advisory of Baltimore acquire Boston’s Winslow There were a number of noteworthy transactions involving said Mark Walter, CEO of Guggenheim. ManagementA second deal involving a niche investment firm saw Following a year on the sidelines, Affiliated Managers , an established “green” technology Groupsellers withcompleted AUM in a dealthe $2 for billion global to equity $5 billion manager range. investor with $320 million in AUM in two mutual funds. Harding Loevner Referring to the flow of capital to green industries and companies, Michael Hankin, CEO of Brown Advisory, (AUM: $5 billion) first announced in said Winslow gives his company a “distinct advantage 12 | | 2010

Investment Management Industry Review coincided with the dismissal of TCW chief investment Clover inCapital understanding” Management who, Federated “will be successful Investors and purchased worth two equityinvesting mutual in.” In funds a continuation from Touchstone of a 2008 Advisors deal for that had officer Jeffrey Gundlach, who oversaw much of the been subadvised by Clover. The funds, with $223 million company’s fixed income portfolio but was widely rumored to be considering a move elsewhere. Analysts view the deal as a defensive move by TCW to protect its flank by In the U.K., Henderson Group paid $160 million in cash in AUM, will be wrapped into similar Federated Clover acquiring a high-quality fixed income competitor. on acquisition strategy. and shares for troubled New Star Asset Management. products. The transaction is in line with Federated’s tack- The ongoing consolidation trend in Canada’s generally chief of Jupiter Asset Management, publicly traded 2009, with several small deals. Manulife Financial Founded in 2000 by John Duffield, the colorful former Corp.healthy acquired financial AIC services Ltd.’s Canadianindustry continued retail fund into business, removing another independent fund manager from the New Star enjoyed fast growth and a high profile, having shareholders,amassed $35 billion including in AUM management, by 2007. But a decision the company that fund business came down to earth with the technology borrowed heavily that year to make a cash payout to domestic industry. A high-flyer during the 1990s, AIC’s and redemptions rose. By the end of 2008, creditors had assumedcaused a liquiditycontrol of crunch the London-based when the financial company, crisis with struck holdingcollapse, company with AUM of declining billionaire from Michael $15 billionLee-Chin, in 2002 a native ofto Jamaica.$3.5 billion Manulife, last year. Canada’s AIC is the largest diversified insurer, investment said the was announced in January 2009. For Henderson, the AUM having fallen to $15 billion by the time the deal acquisition “creates significant scale and presence” for acquisition provides greater scale in the domestic market component,its retail funds, Co-operators which increased Life Insurance to $13 billion Co. andin AUM. Central In Formicaand brings told total the AUM Financial to $90 Times billion. the Several company months planned after 1a bankingCredit Union and insurance teamed up deal to paywith $215 an asset million management for CUMIS the acquisition, new Henderson chief executive Andrew Group Limited. CUMIS provides retirement plan and opportunity enabled us to accelerate our plan and it was wealth management products and services, in addition to build its U.K. business organically but “the New Star to its primary insurance business. In 2008, Co-operators paid more than $300 million to acquire Montreal-based managingtoo good an his opportunity sizable personal to miss.” wealth. For his part, Duffield was Addenda Capital making plans to start a family office, initially charged with

, a fixed income institutional shop. all-French affair, as Credit Agricole and Societe Generale In Europe, the most significant transaction was a massive Cross Border merge their asset management units and create Europe’s followed up on a brokerage agreement reached in 2008 to Asian financial institutions continued to third-largest money manager (AUM: $900 billion).Amundi The, will capitalize on the travails of Western banks dealprovide excludes a comprehensive SocGen’s alternative portfolio businesses.of investments The for banks retail and insurers last year in a further sign of saidand institutionalthe combined investors firm, subsequently and enjoy economies named of scale. the shifting balance of global financial confidence and power. Investors from China, Japan and Singapore made a series of large “The agreement we have signed with Societe Generale is based on industrial logic, seeking to combine production and opportunistic acquisitions to expand efficiency with the power of distribution,” said Georges internationally and domestically at the thePauget, assets. chief executive of Credit Agricole, which gains a expense of retrenching Western players. 75% shareholding, roughly in line with its proportion of Within the broader Asia-Pacific region, Australian banks, with minimal exposure to The new firm leans toward fixed income products, subprime investments and solid balance sheets inrepresenting Europe, the two-thirds new company of AUM, will andhave retail a presence investors in more (70% bolstered by tens of billions of additional of AUM). Although the lion’s share of Amundi’s assets are shareholder dollars, joined in the mix. of a portion of SocGen’s minority shareholding in TCW, than 30 markets, including the U.S. through the transfer an institutional manager with $108 billion in AUM. About 40% of institutional assets are managed for clients outside Stock market valuations underscored the prevailing winds: France. The two banks have a “lock-up” agreement on capitalization.In the fourth quarter HSBC, ofdomiciled 2009, Chinese in London banks since accounted 1993 but their shareholdings for at least five years, but said Amundi for three of the top five banks in the world by market Metropolitan“could consider” West a public Asset listing Management during that period. Late in the year, TCW acquired fixed income specialist historically dependent on Asia for a large proportion of , a Los Angeles- its profits, filled out an additional spot among the top five, based company with $30 billion in AUM. The transaction Berkshire Capital Securities LLC | 13 with JPMorgan Chase the lone U.S. entry. (HSBC announced last September that its CEO would be based in Hong Kong as of February 2010.) China has also been the Cross Border Transactions lasthottest year, market including for initialthe $3.9 public billion offerings, offering U.S. - International 2005 2006 2007 2008 2009 forplaying China host Minsheng to five of Bank the 10 in largest November. IPOs Number of Deals 8

Value ($B) 13 24 19 22 $1.4 center was highlighted by the government’s International - International 2005 2006 2007 2008 2009 announcementThe emergence inof SeptemberChina as a financialthat it would $1.7 $8.3 $5.6 $0.9 Number of Deals 13 nearly $900 million in yuan-denominated Value ($B) $3.2 bonds,for the asfirst the time nation issue prepares to foreign to establishinvestors 23 24 44 38 a global currency alongside the dollar, Total 2005$7.8 2006$1.4 2007$6.1 20$3.308 2009 euro and yen. China’s coffers, meanwhile, Number of Deals 21 were bulging with $2.3 trillion in foreign exchange reserves by the end of the third Value ($B) 36 48 63 60 $4.6 quarter of 2009. Source: Berkshire Capital Securities LLC$9.5 $9.7 $11.7 $4.3 Shanghai-based Industrial and Commercial Bank of China, the No. 1 billion). The transaction, announced in July, followed on deposits, has made several external investments since global bank by market capitalization and (Nikko Cordial NikkoCiti Trust). Japan’s the heels of Citi’s divestitures of its Japanese brokerage 2006, including banks in Canada and Thailand last year. old fund management joint venture with Credit Suisse, ) and trust bank ( In China, ICBC also boosted to 75% its share of a 5-year- alreadythird-largest managed, fund primarilymanager, NikkoAMfor institutions, added pulling$100 billion the Ocean Shipping. Credit Suisse retained a 25% share in companyin AUM and alongside a retail clienteleMitsubishi to theUFJ $290 Financial billion Group Sumitomo as ICBCpaying Credit $40 million Suisse forAsset the Management 20% shareholding. Researcher of China Z-Ben Japan’s leading asset manager. Its various divestitures in Japan notwithstanding, Citi said it remains committed drivenAdvisors in ofpart Shanghai by new projectsproducts a suchtripling as exchangein size of tradedChina’s fund industry by 2014 to more than $1 trillion in AUM, funds (ETFs) and real estate investment trusts (REITs). to building its “core businesses” in this “very important market.” At the same time, the sale of NikkoAM means AIG’s asset abandoning a retail asset management market that Amongmanagement China-based business buyers, (not including the largest its asset in-house management householdis expected assets to be oneare heldof the in bright cash and spots deposits in financial and just 3% deal in 2009 involved a known target — areservices in mutual in Japan funds, in the according years ahead. to McKinsey About half & Company, of Japan’s Bridge Partners. Bridge will pay $300 million in cash and leaving ample room for growth. anotheroperation) $200 — millionbut an unexpected in carried interest suitor, Hongand incentives Kong’s Singapore’s Oversea-Chinese Banking Corp. accounted Pacific Century distressed Western seller, as it paid $1.5 billion for ING Groupfor a business with $89 billion in AUM and operations forGroep the third key deal involving an Asian buyer and a Li,in 32the markets. youngest Bridge son of is Li a Ka-shing, subsidiary one of of the legendary , the 17-year-old investment vehicle of Richard tycoons of Hong Kong’s rags-to-riches postwar era. ’s Asian private banking assets, including surplus yearcapital by of the approximately Dutch insurer, $550 which million. retained The its deal wealth marked communications and infrastructure, though it has in businessesthe third divestiture in Benelux of and private Central banking and Easternassets made Europe. last For thePacific past Century’s owned a holdingslife insurance are focused company on withproperty, an asset

OCBC, the “transformational” acquisition more than triples management subsidiary. Pacific Century said it would business. Other interested buyers from the region included its private client AUM to $23 billion, adds 5,000 clients, capitalize on its Asian infrastructure to develop the Macquarie Group Religare Enterprises and creates a top-10 Asian private banker. It also adds a of India, which made a joint bid, and Temasek Holdings, $1.8business billion whose in 2008. AUM has been growing at a compound of Australia and Singapore’s powerful state investment company. annual rate of 24% since 2002, including net inflows of Citigroup is more than double the valuation paid by Julius Baer The pricing, at 5.8% of AUM (adjusted(see Wealth for Management) surplus capital),, shareholdingIn a second major in Nikko distress Asset sale Management in Asia, to Sumitomo continued to retrench and raise capital by selling its 64% Trust & Banking Co. for $800 million (the total value, for ING’s Swiss private bank including the interest of other shareholders, was $1.2 reflecting both the robust growth of the Asian business and the prospects for the region’s wealth market, along | | 2010

14 Investment Management Industry Review with the stress on Switzerland’s

The 2009 Capgemini Merrill Lynch Worldoffshore Wealth private Report banking projects industry. that Cross Border Transactions by Domicile and Type

Asia-Pacific will surpass North 2008 Buyer: U.S. International International Seller: International U.S. International Total ChinaAmerica passed as the the largest U.K. to regional become the world’swealth market fourth-largest by 2013. individual In 2008, Wealth Management 5 2 21 28 Institutional / Mutual Fund 16 bailoutmarket. it ING received has been from selling the Dutch assets Other 53 34 89 16 government.as it seeks to repay the $15 billion Total 13 9 38 60

2009 Buyer: U.S. International International active last year buying up Seller: International U.S. International Total localAustralian subsidiaries banks were of troubled particularly Wealth Management 0 1 5 6 Institutional / Mutual Fund 2 2 6 10 international financial services domestically and regionally. But Other 3 0 2 5 thefirms major to enhance pure asset their management capabilities deal had a U.S. connection, as Total 5 3 13 21 Source: Berkshire Capital Securities LLC in cash for Philadelphia’s Delaware InvestmentsMacquarie Group paid $428 million owned by Lincoln Financial Group, a recipient of (AUM:$950 million $125 billion), in funds deal,from Macquariethe Troubled had Asset $3.6 Relief billion in capitalProgram above (TARP). minimum At the regulatorytime of the requirements. The purchase provides Macquarie with a foothold last year buying up local subsidiaries of Australian banks were particularly active thein the level U.S. in and 2005. brings The itscompany total AUM said to $340 billion, nearly four times clients of the ongoing commitment troubleddomestically international and financial regionally. services wethe havedeal “isto developinga demonstration a global to our firms to enhance their capabilities asset management capability depth, research and investment Australia and New Zealand Banking Group made two with significant scale, product the local assets of ING and another tottering giant, Royal incomecapacity.” and Founded equity investments.in 1929, Delaware has a mix of retail Bankopportunistic of Scotland acquisitions in the third quarter picking up and institutional customers and provides a range of fixed Macquarie made a series of other cross border deals last . Both deals are consistent with ANZ’s goal of building a “super-regional” bank and expanding theseyear for included asset managers, Toronto-based advisors Blackmont and investment Capital ,banks, an its wealth management business. Said Mike Smith, CEO including four in North America. In addition to Delaware, of ANZ: “We’ve been able to take advantage of the global asset under administration that helped Macquarie expand financial crisis and ANZ’s strong balance sheet to advance itsadvisory Canadian firm business. and investment Macquarie bank paid with $90 $7 million billion infor andour strategy.”life insurance The $1.6joint billion venture ING the deal companies involved formed the CI Dutch firm’s 51% interest in the wealth management Financial. Macquarie was also active last year in China, Blackmont, owned by Canadian mutual fund giant Sino- didin 2002, not include which hasan asset $42 billion management in AUM business, in Australia it did and add Australian International Trust, and launched a joint New Zealand. Although the $550 million RBS transaction venturewhere it with took Chinaa near-20% Everbright stake toin establisha trust company, two Chinese infrastructure funds. 2 million customers from the Scottish bank’s retail and commercial banking operations in numerous developed and emerging markets of Asia. In November, Smith told Reuters the bank was continuing to look at wealth

Berkshire Capital Securities LLC | 15 IOOF and the larger Australian Wealth Management that created an asset manager with more than $80 billion in management “opportunities across Asia.” quarter of 2009 by new CEO Cameron Clyne, National AustraliaIn line with Bank the strategicmade two direction acquisitions outlined expanding during itsthe first assets under management and administration. Analysts Zealand and announced the third and potentially largest expect Australian companies to continue responding to the government’s pressure on financial advisory fees, and onewealth at the management end of the businessyear. The withinlarger ofAustralia-New the two completed Woori profitability, by adding scale. Finance Holdings its 30% interest in the South Korean insurance and wealth management businesses of British Elsewhere in Asia, Credit Suisse sold back to insurerdeals involved Aviva PLC the, $760with $12million billion purchase in assets of the under Australian advice. asset management joint venture they formed in 2006. At asset management business, said it would concentrate the time, Credit Suisse paid $57 million for its share of the Aviva, which retained its retirement-focused Australian firm and proclaimed an ambitious goal of becoming the partnertop asset Woori manager is one in ofthe the market. country’s The largestSwiss firm lenders also andhas assetan investment managers. banking business in South Korea. Its former

move, Affiliated Managers Group in cash for Philadelphia’s Delaware The transactions were not all East to West. In a significant Macquarie Group paid $428 million Value Partners Group made its first Investments investmentone of the largest in Asia, hedge paying funds $36 inmillion the region. for a 5% Established stake in owned by Lincoln Financial Group. (AUM: $4.6 billion) of Hong Kong, (AUM: $125 billion), in 1993 with $5.6 million in AUM, Value Partners pursues a value investing strategy in the “greater China” markets of China, Hong Kong and Taiwan. Referring to AMG’s scale coreand “partnership competencies approach,” and complementary Value Investors product touted offerings the promising greater returns. In a second deal done just a “broad range of exciting opportunities(see Hedge to leverage Funds forboth more our its investments in the region in other insurance markets information). In a related all-China transaction, insurance wealth management unit of Goldman Sachs JBWere, gianton a number Ping An of joint initiatives” month later in July, NAB paid $90 million for 80% of the subsidiary Sensible Asset Management deal includes revenue-based incentives over a three-year to develop and took distribute a 50% ETFs.stake in Value Partners with $9 billion in AUM in Australia and New Zealand. The , formed in 2004 In a common strategy for multinational insurance JBWere and wrapped into its MLC Manulife Financial built period. Goldman will retain the remaining 20% in the firm, insurance and wealth division. off an existing insurance presence in China to expand which NAB rebranded intocompanies asset management, in emerging markets,paying $156 million for Fortis Calibre Asset Management in a bid to provide additional Bank In a small cross border deal, NAB acquired Hong Kong’s joint venture, ABN Amro Teda Fund ’s 49% stake in an 8-year-old Chinese mutual fund services to its private clients in that market. But NAB’s (AUM: $3.8 billion). businesseslargest potential of AXA transaction Asia Pacific involves the proposed $4.2 lastAnother year insurer,as it streamlined Old Mutual, its hadoperations reached in agreement the region. billion purchase of the Australian and New Zealand Manulife,in 2008 to which purchase also thelaunched stake but a new opted asset out manager of the deal in . In Australia, the deal would wealthadd $25 manager billion in and AUM insurer to the (a $66 set billion of circumstances NAB already thatmanages has also and placed would themake proposal the bank on the the nation’s radar screen leading of assetTaiwan management last year, said industry. the deal The “provides joint venture a rare willstrategic be rebrandedopportunity with to make the Manulife a fast-track name. entry” In 1996, into China’sthe Canadian AXA Australian regulators). AXA Asia Pacific, 54%-owned by of France, is listed on theAMP Australian Stock Exchange. withcompany an existing established joint venture,the first lifeAssicurazioni insurance joint Generali venture NAB’s offer trumps an earlier joint bid made by AXA and in China, now operating in 38 cities. Another insurerGuotai Australian wealth manager for the entire AXA Asia Asset Management, with an eye on the domestic pension Pacific business, with AXA taking the Asian insurance of Italy, paid $140 million for 30% of 12-year-old business. The success of NAB’s offer is contingent on the Hennessy Advisors approval of AXA, including its willingness to acquire the market. In an additional deal Down Under, Melbourne-based based asset manager Sparx Investment & Research to Asian business. IOOF Holdings of California cut a deal with Tokyo- another multinational, London-based Old Mutual Group, million in assets. Hennessy, opining that the Japanese consisting of wrap paid platform $32 million and retirementfor the Australian businesses, unit of acquire two Japanese equity funds with a combined $74 administration. The deal follows the 2008 merger between stock market is “poised for sustainable growth,” said it with $7.5 billion in assets under management and is “pleased to now offer international products to our 16 | | 2010 investors.” The two funds were rebranded under the

Investment Management Industry Review Hennessy name but will be subadvised by Sparx. Hennessy, Within Europe, most of the cross border action was management business, up three points from 2007. centered in the wealth industry, with Commerzbank an OTC-traded stock that has made five small acquisitions since 2003, has seen its AUM drop to $700 million after a assets rose to $2 billion. line with government dictates (see Wealth Management). five-year period of rapid growth through 2006, when its India’s asset management industry, which the U.S. particularly active divesting its private banking assets, in Commerce Department estimates will grow sixfold by of non-state pension fund products by adding ING’s non- 2012 to $520 billion, continued to elicit interest from In Russia, Aviva became the leading international provider T. Rowe Price Group paid $138 Citigroup’sstate pension Colombian fund unit pension (AUM: $51 fund million) business, to itswith existing $5.6 manager,international UTI firms.Asset Management business. In Latin America, a trio of investors acquired Baltimoremillion for mutual a 26% stakefund company,in the nation’s which fourth-largest began to build asset included an established local investment company, Grupo its European business a decade ago, (AUM: said the$17 investment billion). The billionColpatria in AUM, and thetwo fourth U.S. private largest equity in the groups market. specializing The buyers Palmfund Management and Linzor Capital Partners. allows it “to participate directly in the tremendous in Latin America, expansiongrowth potential of our investmentof India’s asset management, management distribution industry” and “reflects our firm’s commitmentAllianz to sustaining built off anglobal insurance joint venture to expand into asset management, Real Estate and related services capabilities.” partner Bajaj Group. The partners touted the deal as a mergertaking a of 51% global stake asset in a management new venture experience with insurance and local In 2009, concerns about real estate shifted distribution reach. from the beaten-down residential sector to a Nomura Asset Management commercial market troubled by high vacancy by paying $66 million for 35% of LIC Mutual Fund rates, declining values and lots of leverage. Trustee enteredLife the Insurance Indian market Corp. The Moody’s/REAL Commercial Property of India and the seventh-largest domestic asset manager. Price Index for October 2009 showed prices (AUM: $7 billion),Nomura a unit Holdingsof applied for in the U.S. off 36% from the prior-year period a license to establish a joint venture asset manager in Separately, NAM parent while office rents nationwide fell 8.5% in the third quarter and the vacancy rate hit 16.5%, South Korea with a small local chemical firm. Nomura according to Reis. Then there is the financial Holdings, Japan’s leading broker, acquired Lehman overhang from the frothy years before the Brothers’ European and Asian businesses in 2008 and has credit crisis: some $3.4 trillion in outstanding made clear its ambitions to expand globally. In making the debt on commercial properties, 40% of which investment in LIC, NAM said the Indian market “is key to matures by 2012. Nomura’s push to be a world-class asset management firm With the notable exception of the BlackRock-Barclays with a strong competitive advantage in Japan and Asia.” deal, the transatlantic pipeline remained quiet in 2009, and European companies for another year showed virtually One major casualty last year was Capmark Financial no interest in using their currency edge to expand into the Group, one the largest lenders in U.S. commercial U.S. asset management business via acquisition. Indeed, the largest transaction went the other way, as Bank of New assets of around $20 billion and liabilities of $21 billion. York Mellon Insight Investment Investorproperty, Wilbur which declaredRoss, who bankruptcy believes the in commercial October with Management, owned by bailout recipient Lloyds Banking Group paid $375 million for and the third-largest manager of U.K. pension funds. market is primed for a crash, summed up the situation in Insight,. Thefounded deal nettedin 2002, BNY specializes Mellon $130 in liability-driven billion in AUM November for BusinessWeek, saying, “Commercial real estate has gone from being highly liquid at sky-high prices The story in Europe was more encouraging, though to being extremely illiquid at distressed prices.” areas such as central London, which includes the City of investmentLloyds in 2008. solutions Noting (LDI), that thefixed various income equity and alternatives; collapses it was part of HBOS, the troubled U.K. bank acquired by BNY Mellon Asset Management president EuropeanLondon financial commercial district, real have estate seen remains commercial far off propertyof the of the past decade have left “many retirement plans at a pacevalues of decline the boom as muchyears, as it did50%. rise Although 53% to investment$28 billion in crisis level,” in the third quarter of 2009, according to Cushman & and CEO Ronald O’Hanley called LDI “a critical tool for meeting the needs of current and future retirees” and is consistent with our ongoing strategy to create broad- and non-taxable assets of the largest real estate managers said the acquisition “deepens our global capabilities and Wakefield. Against that backdrop, the combined taxable the latest annual survey by Pensions & Investments. based solutions for our clients.” In 2008, non-U.S. clients worldwide dropped 30% to $710 billion, according to accounted for 41% of revenue in BNY Mellon’s asset

Berkshire Capital Securities LLC | 17 U.S. institutional tax-exempt assets held by the top 50 managers dropped 26% to $316 billion. Hedge Funds

Within the real estate advisory sector, dealmakers concluded the handful of transactions that generally define Following a convulsive and disaffecting 2008, involvingthe marketplace the management each year, twobuyout of which of Lehman took place Brothers in the hedge funds made an encouraging if tentative RealU.S. The Estate largest Partners transaction, a private by AUM equity was vehicle a distress managing sale, rebound in 2009. Net new money began entering the industry in the third quarter, Walsh, who built Lehman’s overall real estate division into albeit cautiously ($1.1 billion), following a $5.6 billion in funds. The buyout group was led by Mark yearlong bout of withdrawals totaling $330 when Lehman’s real estate bets went south and helped billion, according to Hedge Fund Research. a significant profit center until the credit crisis intruded, New fund launches began inching up the second quarter of 2009, again following a year drive the investment bank into bankruptcy. Lehman’s in 2008 when fund liquidations skyrocketed to collapse also sparked a federal investigation into whether The private equity assets acquired by management are Lehman had hiked the paper value of its real estate assets. twice the number of startups. “The most recent primarily based outside the U.S. and include 60 hotels data suggests that the sentiment of hedge in the U.K. In an indication of the challenges the new fund investors has improved from historical managers will face in generating income from the business, lows, but investors remain selective about fund the pricing on the deal was reportedly just $10 million. strategy and exposure characteristics,” said Lehman has been disposing of assets since it declared Neuberger Kenneth Heinz, president of HFR. Berman wealth management group, also acquired by formerbankruptcy management. in September 2008, including the In the second U.S. deal, Prospect Acquisition Corp., a HFR placing average returns at 19% through November Performance was the key to the improving sentiment, with bought Kennedy-Wilson, Inc. Man Group, the largest publicly traded pure hedge fund, bothblank-check companies Florida bid tocompany capitalize formed on opportunities to make acquisitions, in the 2009. In a reflection of broader industry trends, London’s (AUM: $2.9 billion), as saw its AUM begin to stabilize in the half year through distressed real estate market. Based in California and atSeptember $302 million, 2009, was though off more at $44 than billion 50% it from was thedown same accountfounded businessin 1977, Kennedy-Wilsonfocused on investments is a vertically in the U.S.integrated one-third from September 2008. Half-year pretax profit, andreal Japan.estate Infirm explaining with a fund the management deal, Kennedy-Wilson and separate said period in 2008 asbusiness, fee income Man declined announced by $439 in November million. it In a reflection of its desire to make up some of that lost “dislocation” in financial markets will allow investors account platform to a third party, Credit Suissewill for. the first time provide its managed The improved performance notwith- Real Estate Transactions standing, many funds remain below their

2005 2006 2007 2008 2009 performances fees are a distant hope. Fees themselves“high-water” also marks, remain meaning under lucrative pressure Number of Transactions 6 from the institutional investors that Combined Value ($M) 6 10 17 5 $280 constitute an increasing proportion of Total Seller AUM ($B) $13.8 the investor base. Notably, the California $221 $1,536 $2,044 $358 Public Employees’ Retirement System Average Deal Size ($M) $3.7 $31.1 $53.6 $20.8 $47 (Calpers) gave hedge funds warning early Average Seller AUM ($B) $37 $154 $120 $72 $2.3 Source: Berkshire Capital Securities LLC $0.6 $3.1 $3.2 $4.2 in 2009 that it “intends to restructure” fees.these relationships “to achieve better alignment of interests,” including lower On another front, the specter of greater with “sufficient equity capital and investment prowess” Galleonregulation Group on both underlined sides of the Atlanticserious publicand the policy insider and to “emerge as the successful real estate companies of the publictrading relations scandal rockingchallenges New facing York-based the industry. hedge These fund retainedfuture.” Prospect the Kennedy-Wilson raised $250 millionname. through an initial include proposals to oversee pay and tax speculative public offering in November 2007. The merged company 18 | | 2010

Investment Management Industry Review financial transactions. In reference to the proposals, New of Sal. Oppenheim’s large shareholdingDeutsche in IAM, Bank effectively’s York Times economics columnist Paul Krugman echoed the acquisitionincreasing the of Sal. company’s Oppenheim net assets (see Wealth per share Management) by 37%. Butpopular after mood the debacle when heof wrotethe past in twoNovember: years, there’s “This wouldbroad The transaction took place prior to be a bad thing if financial hyperactivity were productive. and gave the Luxembourg-based private bank 100% agreement — I’m tempted to say, agreement on the part ownership of Altigefi. of almost everyone not on the financial industry’s payroll Based in London and traded on the London Stock — with [British Financial Services Authority chief Adair Exchange’s Alternative Investments Market, IAM paid Turner’s] assertion that a lot of what Wall Street and the $11 million for Altigefi at the end of 2007, a decision it City do is ‘socially useless.’” surprising, then, that hedge fund deals reverted to the came to question in 2008 due to IAM’s limited scale in understatedGiven the uncertain level of near-termactivity that outlook, prevailed it wasn’t prior to the fund management. IAM said it would instead focus on three-year boomlet beginning in 2006. In particular, the its brokerage business. Altigefi manages severalCheyne “low- Capital volatility” products. In a second small deal involving two important buying force have vanished, London firms, multi-strategy hedge fund investment banks that were such an years.along withMorgan the majorStanley banks, which that made had Hedge Fund Transactions steppedseven hedge into fundthe marketplace investments in between recent 2006 and 2008, was tending to its 2005 2006 2007 2008 2009 Number of Transactions 10 29 29 30 10 iswounds defunct. and Commerzbank out of the marketplace., which was Combined Value ($M) $201 Lehman Brothers, a perennial dealmaker, Total Seller AUM ($B) $1,390 $1,570 $8,399 $1,417 $19.7 seeking to sell its hedge fund unit early Average Deal Size ($M) $36.4 $57.6 $133.0 $46.2 $20 in 2009, finally threw in the towel and Average Seller AUM ($B) $2.0 anclosed ill-fated it, when $800 AUM million sank purchase to just $300 of $139 $54 $290 $47 themillion. now-shuttered Citigroup, which Old Lane in 2007 Partners made Source: Berkshire Capital Securities $3.6 LLC $2.0 $4.6 $1.5 hedge fund, has been reorganizing its diminished alternatives unit. Meanwhile,

Management acquired Altedge Capital, an 8-year-old indeep-pocketed direct investments investors in hedge in Asia fund and companies, although fund of funds manager that adds $300 million in assets interestother emerging in the investment markets have vehicles yet to is show growing. much interest purchase of Augustus Asset Managers to the $6 billion Cheyne already managed.Acropole Altedge said Asset The largest deal by AUM involved Julius Baer Holding’s Managementthe deal provides, a convertible the benefits bond of distribution specialist based and new in Paris. clients. Cheyne also holds a 33% stake in split into separately traded asset management(AUM: $7.6and The generally active transatlantic hedge fund pipeline billion), which took place prior to the SwissGAM company’s Holding and shut down last year, with just one deal of note involving Julius Baer Group Aladdin wealth management entities, known as Capital Holdings of the European structured credit , respectively. Based in London, AAM businessthe acquisition of London by Connecticut hedge fund investment Solent Capital bank Partners became an independent entity (and took the Augustus whichname) retainedin 2007 after10% aof buyout the company from Julius and aBaer subadvisory that gave management 90% of the company. At the time, Julius Baer, existing(AUM: $750 collateralized million). The debt transaction obligation adds(CDO) a “synthetic”and business in the U.K., acquired in 2005. However, the collateralized loandebt obligation (CLO)(CSO) businesses,business to Aladdin’swhich relationship, said AAM did not fit with its GAM alternative meltdown of 2008 led to a reversal of thinking, with both together have $10.5 billion in AUM. (Synthetic CSOs are companies indicating GAM clients would be “better served abacked larger by partner credit because default swaps,of the collapse as opposed of new to physical issues in andas part currency of a larger specialist. organization.” GAM Holding has $113 assets.) Six-year-old Solent was forced to seek the arms of billion in AUM, including $49 billion at GAM, a fixed income In a second European deal involving partners, Sal. Oppenheim Jr. & Cie the CDO market. “If there are no new deals then you can’t Integrated Asset Management grow,” one Solent partner told Bloomberg. “You either get economies of scale or exit.” In 2007, Solent shut its $1.5 of hedge funds business paid Altigefi $4.9 million S.A. in cash for billion Mainsail II fund when credit markets dried up and In addition to cash, the deal value’s 51%included stake cancellation in French fund Affiliated Managers Group of the U.S. paid $36 (AUM: $800 million). left the company unable to secure financing. In Asia,

Berkshire Capital Securities LLC | 19 redemption dates) rose 20% to $9.8 billion, due to the funds, fast-growing Value Partners Group D.B. Zwirn deal. By contrast, the company’s private equity million for a 5% stake in one of the region’s largest hedge (AUM: $4.6 of its earnings from alternative products (see Cross Border In a transaction involving two Midwest hedge funds, Stark billion), based in Hong Kong. In 2008, AMG derived 15% assets rose 5% to $17.8 billion. for more information) Investments acquired most of the assets of Deephaven increasingly interested in hedge funds, including deep- Capital Management . Investors in Asia have become China Investment Corp. and Bank of China, which in , or around $2 billionKnight in Capital AUM, less pocketed institutions from China such as the state-run Groupthan half, Minnesota-based of what the firm Deephaven had managed endured in 2007. a turbulent Majority- fund, Heritage Fund Management, subsequently named 2008,owned ultimately by New Jersey suspending securities withdrawals firm from two of its 2008 took a majority shareholding in a small Swiss hedge BOC (Suisse) Fund Management. Hong Kong-based hedge funds in the fourth quarter of that year, including Sun Hung Kai Financial Paulson & Co. also announced plans last year to launch a and New York hedge fund giant toits $10flagship billion Global by the Multi-Strategy time of the deal Fund. in JanuaryMilwaukee-based 2009, paid Stark, which saw its AUM decline from a high of $14 billion fund targeting distressed financial companies. million in performance-based payments possible through Within Asia, Hong Kong has become the center for the 2011.$7.3 million For Knight, for Deephaven’s the sale of 15-year-oldassets, with Deephavenanother $37 hedge fund industry, with $55 billion in assets and 542 assetsfunds asdeclined of the first from quarter $90 billion of 2009, during according the year-earlier to the Hong Kong Securities and Futures Commission. Although marked its exit from the asset management business.Orchard number of funds increased 11% between 2008 and 2009. CapitalSeparately, Partners by year’s, reportedly end, the formerover disagreements principals in aboutStark’s period, they were up from just $9 billion in 2004 and the investmentHong Kong officedirection. left toOrchard set up theirwill continue own firm, to manage

The Americas and Europe constitute 84% of investors, but In the U.S., there were two notable buyers of distress introducing its own funds. investments in Asia predominate. Stark’s assets under a subadvisory agreement while BlackRock, Hatteras Funds R3 Alternative Investment Partners assets,Capital including Management the year’s, a credit-focused premier dealmaker, hedge fund. in a bid to capitalizeof North on mutual Carolina funds acquired that employ a “controlling hedge Thewhich terms assumed of the “management deal were not responsibility” announced, but for reports interest” in New York’s indicated that little cash was involved. Launched in Partners uses a multi-manager approach for its two open- 2008 by former Lehman Brothers executives with a $1 fund strategies. Founded in 2002, Alternative Investment billion investment from their ex-parent months before end AIP funds, which have a combined $300 million in underAUM. Hatteras, its corporate a fund name. of funds Mutual manager funds thatwith use $1.3 hedging billion its collapse, R3 had $1.5 billion in AUM at the time of in AUM prior to the deal, will rebrand the AIP funds incomethe BlackRock alternatives deal. R3portfolio president group. and In CEO an internalRick Reider memo fee structure than traditional hedge funds, along with was subsequently put in charge of BlackRock’s fixed greaterstrategies transparency offer investors and the liquidity. benefits They of a also more provide attractive asset managers with the opportunity to reach new retail published by the New York Times, BlackRock said the customers. In a second deal, Hatteras formed a joint acquisition “substantially [expands] our fixed income Ramius LLC through which the portfolio management team to maximize our ability to take advantage of significant investment opportunities for our venture with New York’s clients.” Prior to the BlackRock deal, a bankrupt Lehman firms will manage two fund of funds with initial capital of a $250 million investment in one of R3’s funds. Crestline sold its 45% shareholding in R3 for $500 million, including $347 million. Investors of Texas acquired $683 million in fund of funds Fortress Investment Group beat out eight other bidders assetsIn a cross and border another deal $1.5 in billionNorth inAmerica, beta overlay strategies The second deal, also involvingD.B. ZwirnNew York as part firms, of asaw from Toronto’s privately held Northwater Capital liquidation sale. D.B. Zwirn, which at one time managed Management, founded in 1989. Crestline, a specialist in for$5.5 $2 billion billion in in assets, AUM fromwas hurt by redemptions following low volatility and opportunistic strategies, had $3.6 billion a Securities and Exchange Commission investigation into managed money for the billionaire Bass family of Texas. said the funds will be rebranded as Fortress Value in fund of funds AUM prior to the deal and has for years Recoveryaccounting Funds irregularities, I. Between beginning the third in quarter 2007. Fortress of 2008 and and extends its presence into Canada, where it will set 2009, publicly traded Fortress saw its liquid hedge fund The company said the acquisition diversifies its client base former president. vup an affiliate office in Toronto managed by Northwater’s AUM drop in half to $4.5 billion, driven by redemptions, while its “hybrid” hedge funds assets (containing annual

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Investment Management Industry Review