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Berkshire Capital is an independent, employee-owned investment bank specializing in M&A H. Bruce McEver R. Bruce Cameron Caleb W. Burchenal +1 212 207 1001 +1 212 207 1013 +1 303 893 2899 [email protected] [email protected] [email protected] in the financial services sector. With more completed transactions in this space than any other investment bank, we help clients find successful, long-lasting partnerships. Robert P. Glauerdt Ted J. Gooden Bomy M. Hagopian Founded in 1983, Berkshire Capital is headquartered in New York with partners located in San +44 20 7828 0024 +1 212 207 1043 +1 415 293 8426 Francisco, Philadelphia, Denver, London and Sydney. Our partners have been with the firm an [email protected] [email protected] [email protected] average of 13 years. We are recognized as a leading expert in the wealth management, money management, alternatives, real estate and broker/dealer industries. We believe our success as John H. Humphrey Brendan K. Kelly D. Scott Ketner a firm is determined by the success of our clients and the durability of the partnerships we help +44 20 7828 2211 +1 212 207 1040 +1 212 207 1042 them to structure. [email protected] [email protected] [email protected]

Ian Martin AM Richard D. Miles Drew R. Murphy +61 2 9221 2271 +1 212 207 1830 +1 212 207 1824 [email protected] [email protected] [email protected]

Nicholas J. Sheumack Mitchell S. Spector Jonathan Stern +1 212 207 8094 +1 212 207 1828 +1 212 207 1015 [email protected] [email protected] [email protected]

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www.berkcap.com attempt to stabilize prices, Beijing took a series of aggressive The emerging glow dims measures, including buying an estimated $235 billion worth of shares in July and August via state-run investment funds and institutions; imposing broad restrictions on Given its status as the world’s second-largest oil share trading; easing margin requirements; limiting short producer and with a population of just 30 million, selling; and suspending initial public offerings. Beijing also the government of Saudi Arabia rarely needs other people’s money. At the start of 2015, the nation’s New debt-to-GDP ratio was a microscopic 1.6%, and the launchedYork Times insider, authorities trading reviewing investigations trading against records high-profile went so last time the government tapped the bond market Chinesefar as to securitiesask fund managers firms and “why traders. they According sold shares to thewhen the was in 2007. But when you rely on oil to sprinkle market was going down, prompting discussion about basic largesse on a potentially restive public and that commodity nosedives in price, money can quickly investmentUnderscoring strategy.” the interdependence of the global economy, become an issue. Last August, having already sold Federal Reserve Chair Janet Yellen referenced events in off $60 billion in foreign assets to bridge a 2015 China in announcing last September that the long-awaited budget gap that the International Monetary Fund increase in U.S. interest rates would be put on hold yet again, projects at 22% of GDP, the kingdom issued the equivalent of more than $5 billion in bonds for in nine years. That rate hike holds the potential to create purchase by domestic banks. withadditional the Fed stress finally for acting emerging in December markets byfor drawing the first globaltime As the world has catapulted from one crisis to another since 2008, chalk up 2015 as the year that emerging markets added their own chapter to the long-running saga. The culprits: a commodity price bust; a continuing soft global Emerging Funk economy; and a worrying buildup in sovereign, corporate GDP GROWTH and household debt in many of those markets. In its October 2015 World Economic Outlook, the IMF projected growth 2007 2015* 2016* in emerging markets at 4%, down from 4.2% in its July forecast, the 4.6% achieved in 2014, and half the pre-crisis Emerging Markets 8.3% 4.0% 4.5% level. The IMF pegs export growth in emerging markets at China 13.0 6.8 6.3 just 3.9% and import growth at 1.3%. In 2007, emerging market export and import growth stood at 9.8% and 13.8%, India 9.4 7.3 7.5 respectively. Growth in world trade volume in goods and ASEAN 6.3 4.6 4.9 services that year was 7.3% compared with the 3.21% projected for 2015. “For most emerging market economies, Russia 8.1 (3.8) (0.6) Emerging Europe 5.5 3.0 3.0 IMF. “While currency depreciation will help net exports, the Brazil 5.7 (3.0) (1.0) external‘pull’ from conditions advanced are economies becoming will more be somewhat difficult,” writes more the modest than previously forecast, given their weak recovery L.Amer/Carib 5.7 (0.3) 0.8 Global 5.2 3.1 3.6 andThe moderatedominant prospectssuch market, for China,medium-term played the growth.” role of both * Projected diminished star and emerging markets spoiler, as its slowing Source: IMF economy pinched commodity-dependent emerging market exporters from Brazil to South Africa. Chinese imports capital to U.S. Treasuries and other U.S. securities. In 2015, including a 19% plunge in October from the year-earlier declinedperiod. At every 6.8%, month the IMF’s in the projection first 11 months for 2015 of Chinese 2015, GDP growth is in line with the government’s projections and emerging market capital flows went sharply negative for the first time in 27 years: The Institute of International Finance (IIF)As they projected reviewed net the outflows various at pressures $540 billion. on emerging itsgrowth longer-term could be “new a percentage normal” targetpoint or in twothe 6.5%lower range. based on market economies, including the buildup of debt, analysts Buttheir many review observers of such datadistrust as trade, official industrial numbers production, and believe railway freight volume and electricity use. weighed the potential for another financial crisis. The IMF In response to the domestic slowdown, Beijing went into putsthe level corporate 10 years debt earlier. among During nonfinancial that time, emerging the average market stimulative overdrive, lowering interest rates multiple times, firmsemerging as of market 2014 at corporate $18 trillion, debt-to-GDP or more than ratio four has times climbed announcing multiple infrastructure projects and relaxing 26 percentage points to nearly 75%. For corporations that borrowed in foreign denominations, which represent about sector, the government cast its reformist intentions aside one-third of the $3 trillion in bond-related debt, there’s the bankwhen reserve the overheated standards stock to spur market lending. began In tanking the financial last added burden of weaker local currencies. “A key risk for the June, erasing more than $4 trillion in market capitalization emerging market corporate sector is a reversal of postcrisis before it began a sharp upward move in late August. In an

INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 accommodative global financial conditions,” writes the IMF. 1 fund, a major investor in emerging markets, was down more than 6% year-to-date through September, with Slower Trade Lanes

TRADE IN GOODS & SERVICES (% GROWTH) AUMof their having assets declined in emerging by $10 markets billion securities.to $58 billion. All told, EPFR Global figures global bond funds have a hefty 16% 2007 2015* 2016* In the U.S., 2015 proved challenging for asset managers Global (total) 7.3% 3.2% 4.1% after three straight years of double-digit returns on the Standard & Poor’s 500 index, as volatility spooked Advanced Economies (imports/exports) many investors and see-sawing markets tempered asset 4.7/6.3 4.0/3.1 4.2/3.4 growth. According to the Investment Company Institute, Emerging Economies (imports/exports) 13.8/9.8 1.3/3.9 4.4/4.8 U.S.fund equity assets funds down experienced 3.5% from the net year-earlier outflows of period.$113 * Projected billion in the first three quarters of 2015, with U.S. equity Source: IMF At the same time, global equity funds had net inflows ofslightly $103 frombillion, September although 2014.assets BlackRock were down mirrored 4.1%. Bond fund flows were up slightly while assets were down of 2015, governments in more than 30 emerging markets the(although larger itstrend, leading as its iShares mountainous asset base was flat Sovereignsaw their debt debt downgraded is another issue. by at In least the firstone ofthree the quartersmajor Affiliated Managers Group, a proxy rating agencies, with commodity-dependent nations at in the year through September 2015 at $4.5 trillion particular risk. In September, for example, Standard & ETF business recorded Poor’s cut Brazil’s sovereign debt rating to junk status with solid net inflows). a small decline from the year earlier. Artisan Partners a negative outlook while Fitch lowered the rating similarly for a range of investment styles given its large affiliate Asset Management in December, as the economy endured its worst recession network, had $593 billion in AUM in the third quarter, manager, experienced a 9% drop in AUM in the year since the 1930s as well as a political crisis. through September 2015., a mid-size Milwaukee-based equity For emerging market specialists, the result of the Industry deal-making was another story, however. Coming off a banner year in 2014, 2015 proved to be another as investors pulled money from funds and fund values economic and financial red flags was decidedly negative, transactions and the larger M&A environment registering December, the MSCI Emerging Markets Index was down strong year with $23.5 billion in asset management fellnearly in tandem 14% compared with financial with minus markets. 1.4% Through for the early MSCI All Country World Index. J.P. Morgan EM Index was trading at 12.8 times 10-year average a record $4.6 trillion in deals announced by December, accordingin “dry powder,” to Thomson accounted Reuters. for several The private of the equity largest earnings as of last September — below figured the low the point MSCI industry,transactions. as a Ofwhole most sitting note, Generalon more thanAtlantic $1.3 and trillion Warburg Pincus joined with Santander and UniCredit in a complex transaction that combined the asset management reachedin emerging during market the 1997-1998 assets, about Asian evenly financial split between crisis. In the third quarter, IIF said global investors sold $40 billion since 2008. “We have had this love affair with emerging stocksmarkets, and but bonds, it’s over,” marking Brown the Brothers largest quarterly Harriman outflow market strategist Marc Chandler told the Financial Times Record Breaker last November. MERGERS & ACQUISITIONS WORLDWIDE At Aberdeen Asset Management Number of announced deals 2015 (vs. 2014) net outflows for the Worldwide 42,313 (+ 0.2%) fullbusiness. year ending Chief Executive September Martin 2015 Gilbertwere £34 acknowledged billion ($52 U.S. 9,962 (- 1.6) billion),that “current reflecting weakness” difficulties in those in its markets emerging “may markets have some Europe 14,786 (+ 2.9) fundamental attractions ... remain compelling for patient Asia-Pacific (ex-Japan) 11,250 (+ 0.4) way to run,” but expressed confidence that the “long-term price led the British press to report the company had investors.” The tough environment and a flagging share Value of announced deals ($ billions) 2015 (vs. 2014) Worldwide $4,748 (+ 42.2%) quietlymarkets begun bond talksspecialist with Ashmorepotential suitorsGroup —saw a reportits AUM the Scottish firm forcefully refuted. London-based emerging U.S. 2,344 (+ 64.3) Europe 907 (+ 7.7) dropthough 13% the between company the said June “negative and September market sentiment” quarters, the resultregarding in equal “certain measures emerging of net markets outflows experienced and performance, in the Asia-Pacific (ex-Japan) 1,143 (+ 62.7)

Source: Thomson Reuters At Franklin Resources later part of the quarter has provided good opportunities.” 2 , the iconic Templeton Global Bond businesses of the two banks and left the four players with varied interests in the new Investment Management Transactions structure that was formed. The new holding company, Pioneer Investments, has €400 billion ($435 billion) in AUM and was 2011 2012 2013 2014 2015 valued at around €5.4 billion Majority Equity 119 127 129 126 139 by the terms of the transaction. Minority Equity 15 29 20 14 21 In 2013, General Atlantic and Warburg paid €1 billion for a Management Buyout 10 13 10 3 6 50% interest in Santander’s Total 144 169 159 143 166 asset management arm. Two Total Transaction Value ($B) $10.3 $12.6 $14.8 $26.4 $23.5 TA Associates and Reverence Total AUM Changing Hands ($B) $756 $1,133 $1,636 $1,980 $1,895 otherCapital U.S., also private teamed equity up infirms, the $1.15 billion purchase of Russell Source: Berkshire Capital Securities LLC Investments’ asset management business from the London Stock Exchange Capital — were active in the U.S. wealth management sector, acquiring Mercer Advisors, Edelman Financial margin indexing. In 2014, business, LSE paid which it retains. Services and Wealth Enhancement Group, respectively $2.7 billion for Russell to gain the firm’s large and higher- TA Associates factored into two other U.S. deals last (all three sellers were also from the private equity year on both sides of the table, acquiring the rest of the industry). interest it did not own in small- and mid-cap manager The tepid global economy and diminished trade didn’t Keeley Asset Management while selling its stake in deter companies from crossing borders in search of value investor First Eagle Investment Management Blackstone Group and Corsair partners,currency weakenedwith Canadian against financial the greenback, firms continuing Canadians their to private equity firms aggressivefocused on post-financial-crisisthe U.S. last year, led expansion. by Sun Life Even Financial as the . The Toronto-based insurer, which has been expanding Growing Pie its third-party asset management business, made two Ryan Labs GLOBAL AUM ($ TRILLION) Asset Management and Prime Advisors), along with theacquisitions C$560 million for U.S. ($455 fixed million) income purchasemanagers of ( a Toronto real estate advisor with assets on both sides of the 74 69 border, Bentall Kennedy Group. In a bank transaction Royal 55 Bank of Canada paid $5.4 billion for City National withCorp. a significant wealth management component,Fiera Capital 46 Corp. continued its growth-via-acquisition strategy with of Los Angeles, while Montreal’s Samson Capital

31 Advisors. An end-of-year deal involving a Canadian seller a deal for New York fixed income shopNomura pay about $1 billion for CIBC’s 41% interest in Kansas City-based sawAmerican Japanese Century financial Investments services giant. Toronto-based CIBC

2002 2007 2008 2013 2014 said its inability to gain “a path to control” drove the profitableAlthough much sale. of the post-crisis restructuring of Source: Boston Consulting Europe’s asset management industry has already taken place, Switzerland’s Union Bancaire Privee was able to capitalize on Royal Bank of Scotland’s turn to the domestic market to buy its attractive Coutts Capital. The latter deal valued First Eagle (AUM: $100 international wealth management business. UBP’s billion) at $4 billion. Blackstone also took a stake in purchase marked the second opportunistic deal it hedge fund Magnetar Capital, a specialist in event- has made since 2013 at the hands of a bailed-out U.K. Lloyds Banking of New York’s major private equity groups, KKR & Group’s Swiss wealth business). Although deal activity driven,Co., added energy to its and hedge fixed fund income portfolio investments. by acquiring Another a financialwithin China firm was (the quiet other last being year, for aggressive Shanghai- minority stake in one of Europe’s largest hedge funds, based conglomerate Fosun gained a foothold in Marshall Wace Europe’s asset management market by paying €210 Genstar Capital, Hellman & Friedman and Lightyear million ($230 million) for German private bank Hauck . Three other private equity firms — INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 3 investor Imprint Capital and liability specialist Pacific Global Advisors; Janus Capital Group’s purchase of a majority interest in global unconstrained bond manager Who’s Selling Kapstream Capital; and Lebenthal Holdings’ purchase NUMBER OF TRANSACTIONS BY SECTOR AS % OF TOTAL of a minority share in small-cap boutique AH Lisanti Capital Growth.

5% 4% Familiar buyers were active last year, including Affiliated 9% 9% Managers Group 5% 6% of which involved hedge funds and wealth managers, 38% 47% including Geneva-based, which Systematica made five investments, Investments four and San Francisco’s Baker Street Advisors. Serial U.S. wealth 34% 43% buyers Focus Financial Partners, Mariner Wealth Advisors and United Capital Financial Advisers were also active. Henderson Group of the U.K. made three

2014 2015 of total AUM. Aberdeen Asset Management, American dealsInternational in Australia, Group bringing, First its Republic Asia-Pacific Bank AUM, Man to Group11% , VALUE OF TRANSACTIONS BY SECTOR AS % OF TOTAL Raymond James, Standard Life and Stifel Financial Corp. were among the other major buyers of asset 1% managers last year. 6% 4% 7% 4% *** 15% For decades, emerging markets have been the holy grail for 18% investors seeking outsized returns, albeit with the attendant 67% 78% risks inherent in such places. Within that pantheon of fast- growers, no market stood taller than China. Since the start of its economic reforms in 1978-79, the country has galloped through three separate decades with annual double-digit 2014 2015 economic growth rates as predictable as a metronome. But like any entity that starts small and gets very big, the law of averages eventually catches up. China’s neighboring model Money Management Hedge Fund/Hedge Fund of Funds Wealth Management Real Estate Kong, Singapore, South Korea and Taiwan) — discovered Private Equity/Other forthat economic years ago. development — the “Asian Tigers” (Hong

Source: Berkshire Capital Securities LLC China now faces the challenge of continuing growth in the context of a more mature economy requiring greater stimulus from domestic consumption as opposed to exports fueled by cheap and abundant labor. Moreover, in the years & Aufhauser. Within India, there were several joint ahead China will confront an aging population that generally venture divestitures by European banks while Nippon portends slower growth, as Japan has discovered. (In a bid Life Insurance doubled down on the market by raising to tackle the aging trend, Beijing announced in October that its stake in the nation’s largest asset manager, Reliance it would lift its long-established one-child policy.) In 2015, Nippon Life Asset Management China’s transition left many commodity-driven emerging deal, Mizuho Financial Group bought a minority stake markets in the slow lane, given the nation’s outsized impact in Matthews International Capital. In Managementa transpacific , a on their economies. Brazil, for example, was sending half prominent San Francisco-based Asian investor. its commodity exports to China as overall exports to that market grew fourfold between 2007 and 2011 to top $40 capitalize on institutional demand for infrastructure is feeling the pain. Twoinvestments: cross border Legg deals Mason by’s American purchase firms of a 75% sought stake to in billion. With those days having passed, Latin America’s giant Australia’s RARE Infrastructure, a specialist in global For asset managers specializing in emerging markets, 2015 listed infrastructure investments; and Hunt Companies’ was a year they will doubtless be happy to leave behind Amber Infrastructure Group a damper on the results of broad-based asset managers purchasesocial infrastructure, of a 50% interest transportation, in London-based renewable energy whileas well. the Still, general the industry soft tone has of recoveredglobal financial nicely markets from the put and urban development, which projects. develops As investors and finances of all stripes gravitate to index-driven products, a number industry survey, AUM worldwide rose 8% to a record $74 of deals were similar to those infrastructure plays in financial crisis. According to Boston Consulting’s latest focusing on active managers that can offer uncorrelated historic peak of $102 billion. Operating margins remained or lower-risk products, play into investment trends, or trillionsteady fromin 2014 2013 while at 39%, profits up climbed seven percentage 7% to match points their from hold a greater potential to deliver alpha. These include 2009, although a couple of points below the record level Goldman Sachs’ acquisitions of socially responsible

4 achieved prior to the financial crisis. Money Management Who’s Buying The money management industry is only in the middle rounds of an historic shift from traditional 2011 2012 2013 2014 2015 active investing to passive and new active Money Manager 34 36 36 31 45 strategies, according to asset management Financial 26 24 32 16 27 consultant Casey Quirk. In a white paper released last July, Casey Quirk projected that over the Wealth Manager 28 23 13 21 20 next five years there will be $2 trillion in outflows Bank 15 26 24 17 19 worldwide from traditional active strategies Securities Firm 9 9 9 14 17 concurrent with a shift of $4 trillion into new active and $1 trillion into passive strategies. The Insurance Company 2 13 9 16 13 bottom line: “Investment management firms Real Estate Manager 4 5 4 7 7 will increasingly look externally at acquisitions, MBO 10 13 10 3 6 partnerships and hiring to obtain critical products skills.” Trust Company 3 2 6 4 4 Other 13 18 16 14 8 In the paper, “New Arrows for the Quiver: Product

Total 144 169 159 143 166 says the introduction of new strategies such as multi-asset- Source: Berkshire Capital Securities LLC Development for a New Active and Beta World,” Casey Quirk income will be critical to the success of money managers. classAdditionally, solutions, investors’ liquid alternatives willingness and to tap unconstrained into products fixed with At the same time, this remains a time of change and less than three-year track records “has risen dramatically, challenges. Boston Consulting data show net new assets were 1.7% of total prior-year AUM, below the pre-crisis according to 15 years of data reviewed by Casey Quirk, level that ranged over several years from 4% to 5.7%. Fees makingcompanies product have developmenta generally negative increasingly track recordsignificant.” for Yet, also remain under pressure while costs are climbing, in developing new products that achieve meaningful scale: large part due to greater regulatory demands imposed by the Securities & Exchange Commission in the U.S. and than $1 billion in assets within 10 years. the Markets in Financial Instruments Directive (MiFID) in Less than one-quarter of such products have gained more Europe.

In addition, and as we note in the Money Management Notingdevelopment that “firms will be are a moresubstantial willing catalyst than ever to an to ongoinglook outside section, asset management consultant Casey Quirk their walls for new talent,” Casey Quirk writes: “Product industry is undergoing from traditional active investing to boom in M&A activity.” The need for “highly differentiated quantifiespassive and in new a new active paper strategies. the ongoing The andconsultant historic projects shift the investmentthe consultant skills” writes. may In be Casey particularly Quirk’s profitable survey of assetfor smaller assetmanagers, managers, 28% citedcreating acquisitions, a “seller’s subadvisory market” for suchrelationships firms, and partnerships, and lift-outs of established teams as three $2into trillion new active in outflows and $1 worldwide trillion into from passive traditional strategies. active These means to develop products. More than half said they would strategiesnew active over strategies the next include five years multi-asset-class and a shift of solutions, $4 trillion achieve that goal by leveraging internal capabilities. with that, Boston Consulting notes that the share of AUM The themes outlined by Casey Quirk played out in a number liquidrepresented alternatives by traditional and unconstrained active products fixed has income. declined In line of money management deals last year, including Goldman from 59% to 39% since 2003, while passive products have Sachs’ acquisitions of socially responsible investor Imprint added six points to 14% and solutions and alternatives Capital and liability specialist Pacific Global Advisors; have doubled to 13% and 11%, respectively. In Casey Lebenthal Holdings’ purchase of a minority share in Quirk’s survey of asset managers, 28% cited acquisitions, small-cap boutique AH Lisanti Capital Growth; Nasdaq’s subadvisory relationships and partnerships, and lift-outs Dorsey Wright of established teams as three means to adapt to shifting & Associates; Raymond James’ purchase of ETF asset demand. acquisitionallocation specialist of an ETF Cougar and smart Global beta Investments firm, (see Cross Border); Aberdeen Asset Management’s acquisition of When you add up regulatory pressures, the need for emerging and frontier markets investor Advance Emerging specialized products, and the generational issues Capital; Janus Capital Group’s purchase of a majority interest in global unconstrained bond manager Kapstream continuation of the robust deal-making environment we Capital; Sun Life Financial’s acquisitions of two liability facinghave seen many at independentwork in the past firms, couple we would of years. anticipate As potential a Prime Advisers and Ryan Labs sellers weigh those options, and as buyers consider the Asset Management; and Legg Mason’s assumption of a range of targets, we stand ready to assist in both analyzing drivenmajority investment stake in RARE firms, Infrastructure , a specialist in global the value of businesses and helping to secure mutually listed infrastructure investments (see Cross Border for Janus, Sun Life and Legg Mason deals). INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 profitable relationships. 5 minority investor. At that time, Keeley had more than twice the $4 billion in assets it now manages. Keeley’s dominant fund is Small Cap Value (AUM: $2.2 billion), which targets The leading U.S. deal in the investments in undervalued and diverse U.S. companies that sector involved a traditional have market capitalizations below $3.5 billion. Following on the heels of a record year for transactions fund target, however, as accounted for the largest such deal last year by paying $225 private equity firms Blackstone involvingmillion for passive Dorsey investment Wright & Associates. firms in 2014, By purchasing Nasdaq

Group and Corsair Capital presence in the index and ETF marketplace, and in theparticular established the fast-growing Virginia firm, smart Nasdaq beta extends space. DWAits existing adds 17 teamed up to buy a majority ETF indexes and $6 billion in assets under management and stake in First Eagle Investment administration, including smart beta products, to Nasdaq’s 69 licensed smart beta ETFs. Nasdaq said it will become Management $45 billion in assets benchmarked against such indexes. “oneDWA ofPresident the largest Tom providers Dorsey said of smart the deal beta “will indexes,” allow with us to

The leading U.S. deal in the sector involved a traditional growthe transaction, significantly, Nasdaq while acquired continuing the to majority create products share held and Blackstone strategies that meet the needs of our clients.”Falfurrias As part Capital of Group and Corsair Capital teamed up to buy a majority Partners, which made the investment in 2011. The deal fundstake target, in First however, Eagle Investment as private equity Management firms . The byfollows middle-market a similar but private much equity larger firm transaction made in 2014 acquisition was done via First Eagle holding company by another exchange, the London Stock Exchange, which Arnhold and S. Bleichroeder Holdings and valued the acquired index provider Russell Investments. OppenheimerFunds also acquired a smart beta provider, firmby an at unnamed $4 billion, number suggesting of their a price clients. above The $2 transaction billion. The Philadelphia-based VTL Associates, with $1.7 billion in twoincludes private the equity purchase firms of wereall shares joined held in theby Boston’s investment TA institutional AUM across eight RevenueShares branded Associates, which took a minority stake in First Eagle in ETFs and separate accounts. OppenheimerFunds praised assets it currently manages. Since 2014, TA has divested its proprietary methodology to weigh factors such as revenue 2007,interests when in three the firm other had asset about managers, half the $100 including billion DNCA in VTL’sand dividends, “distinctive as approachopposed to to market smart beta,” capitalization, which employs to a Finance last year. said customers are demanding a greater array of Bridget Macaskill, president and CEO of First Eagle, said the “lower exposure to overvalued companies.” Oppenheimer deal addresses the liquidity needs of shareholders while “achieving our primary goals of remaining independent, investmentstarted in 2004 options by a and former it was Philadelphia “expediting” police the processdetective of preserving our investment-centric culture, and increasing meeting that demand “with a strategic acquisition.” VTL was reputation as a prudent value investor with an eye on and Smith Barney managing director, Vincent Lowry. In employeedownside ownership.”risk, a strategy First that Eagle can hascause established its funds to a lag 2008, Lowry launched the ETF business, which includes large-, mid- and small-cap funds, as well as financial Eagle Global, had 17% of its $50 billion in assets parked sectorwealth and and “ultra” institutional dividend channels. funds. Lowry said the link to in bullcash markets. in the second For example, quarter theof 2015. firm’s “We largest view fund, our keyFirst Oppenheimer will expand VTL strategies across the retail, With its acquisition of Imprint Capital, Goldman Sachs adds told Barron’s in December 2014. “In ebullient markets capabilities in another growing area, socially responsible assetlike the as onetemperament,” we’ve seen, fundwe are manager happy toMatthew be a net McLennan seller of investment. Based in San Francisco, Imprint has some $550 million in AUM and was described by Goldman as General an “innovator in developing investment solutions that overpricedAtlantic and securities.” Warburg In Pincus a similar joined transatlantic hands with megadeal the generate measurable environmental, social and effective involvingparents of the Pioneer teaming Investments of two private and equity Santander firms, Asset Management to merge the two asset managers into a more a month prior to the deal, Goldman named a managing (see Cross Border). governance (ESG) impact alongside a financial return.” Just formidableAs it was selling global its firm position in First Eagle, TA Associates director, Hugh Lawson, to a new position as head of ESG acquired a majority stake in Chicago small- and mid-cap investing.part, 8-year-old The company Imprint, said whose the assets acquisition grew “affirmsmore than our 50% manager Keeley Asset Management from Keeley parent strongin the two commitment years prior to to ESG the and Goldman impact deal, investing.” cited its For new its Joley Corp. The deal, which includes equity stakes for assets vary widely, the sector has been growing rapidly, and founder John Keeley, Jr., which triggered a change of parent’sdriven by “exceptional demand from resources.” institutions, Although as well estimates as wealthy of ESG “keycontrol employees,” to his wife followed and Keeley the Presidentdeath of Keeley Kevin PresidentKeeley. TA individuals. has been engaged with Keeley since 2008, when it became a 6 $290 million in AUM. The deal involves a

Money Management Transactions rare pairing of two firms run by women: Lebenthal CEO Alexandra Lebenthal 2011 2012 2013 2014 2015 andbegan AH to Lisanti’s operate majority under the owner Lebenthal Mary Number of Transactions 58 67 61 67 63 Lisanti.Lisanti FollowingCapital Growth the deal, name. AH Lisanti

Combined Value ($B) $5.8 $7.3 $9.0 $20.5 $15.8 deal was “a real opportunity to create Total Seller AUM ($B) $450 $762 $1,061 $1,430 $1,408 Lebenthala powerhouse told withMutualFundWire women-owned the Average Deal Size ($M) $100 $109 $148 $306 $252 a “four-star fund that we really haven’t Average Seller AUM ($B) $7.8 $11.4 $17.4 $21.3 $22.4 managers,” while Lisanti called her firm

Source: Berkshire Capital Securities LLC marketed.” Established in 2003 and baseddesigned in New to deliver York, “aboveAH Lisanti average pursues risk- aadjusted “thematic returns concentration” with higher strategy alpha and

one time the most recognizable name among retail investors Goldmana unit of J.P. also Morgan acquired in 2005Pacific and Global acquired Advisors, by California’s a customized beta” than the Russell 2000 index. At Pacificsolutions Life provider Insurance for large Co. pension plans. Launched as on risk management and has $18 billion in assets under inacquired the municipal in 2001 bond by brokerage market, Lebenthal Advest Group, has undergone which was in 2011, Pacific Global focuses significantin turn bought change by Merrill since the Lynch turn ofin the2005. century, Merrill having quickly been successfully obtained an opinion from the U.S. Department supervision. In 2006, Pacific Global CEO David Oaten the use of liability-driven investing. Goldman said the retiredsince built the itLebenthal into a wealth name, manager which was and revivedcorporate by debtAlexandra and ofdeal Labor “reinforces regarding our defined focus on benefit our investment liabilities thatoutsourcing spurred Lebenthalequity underwriter. when she started up her firm in 2007. She has Goldman has a large outsourced CIO business and in recent A second deal with a small-cap target involved Emerald solutionsyears has business,acquired twoand stablein particular value providers our pension to enhancepractice.” its Asset Management acquiring 11-year-old Elessar Investment Management that pursues a concentrated strategy involving a value- definedIn the shifting contribution money business. market space, BlackRock acquired oriented portfolio of 40 to 60. Like companies. Lisanti, Elessar Emerald is apraised boutique $87 billion in such assets from Bank of America, giving it Cleveland-based Elessar for its “rigorous and disciplined $370 billion in cash management assets. BoA will continue to handle distribution while BlackRock manages the assets. The deal underlines the squeeze on money market bottom-upElessar’s fund fundamental will be rebranded research under analysis” the Emeraldthat it said name. is managers from low interest rates and new regulations and “aEmerald, natural based fit with in Emerald’sPennsylvania, research-driven is an institutional approach.” and retail manager with $3.2 billion in AUM. As investors have the deal combines BlackRock’s global cash management gravitated to indexes and ETFs over active management, they theexpertise resulting with pressure BoA’s strong to gain client scale. relationships. The two firms Federated said Investors made three acquisitions last year to bolster its small-cap active managers to outperform indexes in a part large money market business, adding a total of more than $8 have maintained a measure of confidence in the ability of billion in assets that were wrapped into similar Federated mid-cap spaces. funds. The largest involved $7 billion in AUM from Reich of the market viewed as less “efficient” than the large- and & Tang Asset Management, a subsidiary of Natixis that American International Group, most notable for divesting focuses on liquidity strategies. Reich & Tang said it is exiting the money market fund business to focus on its FDIC- insured sweep programs for banks and brokerages. The someshop, First$70 billion Principles worth Capital of assets Management since the financial (AUM: crisis, $10 other two transactions involved $1.1 billion in assets from steppedbillion). Asinto part the of marketplace the deal, First last Principles year to buy CEO a fixed Douglas income Huntington National Bank of Ohio, consisting primarily Dachille was named executive vice president and chief of Treasuries, and $100 million in Ohio tax-free money market assets from Touchstone Investments of Rhode founded in 2003 by Dachille and based in New York, First investmentPrinciples provides officer of customized AIG, replacing solutions the retiring to institutions, CIO. Co- income businesses, money market funds still account for Island. Although Federated has expanded its equity and fixed AIG back in the business of managing third-party assets, of restructuring its money market funds to be in compliance familyDachille’s offices primary and private function clients. will be Although to oversee the AIG’s deal putsinternal 70%with newof total SEC assets. regulations Last year, announced Federated in began2014. Thosethe process rules, portfolio. In the 1990s, Dachille and AIG President and CEO

group at J.P. Morgan. Along with other investors, Dachille and toinstitutional be implemented accounts. through 2016, include floating net asset Peter Hancock worked together in theGen global Re Securities derivatives from values and withdrawal limits during financial crises for Berkshire Hathaway. AIG praised Dachille for his “track Hancock later attempted to acquire

In the boutique arena, Lebenthal Holdings bought a minority record in all aspects of asset management, structured finance shareINVESTMENT in AH MANAGEMENT Lisanti Capital INDUSTRY Growth, REVIEW a small-cap | 2016 investor with and risk management at global companies.” 7 In the stable value sector, Cincinnati-based life insurer Ohio Sankaty is an established credit manager with more than $6 National Financial Services purchased the remaining interest it did not own in Fiduciary Capital Management AUM in total. The second deal saw Benefit Street Partners’ of Connecticut. Ohio National, with more than $41 billion billionacquire in TICC CLO Managementassets prior to. BSP,the deal the creditand some investment $26 billion arm in in AUM, acquired its original majority stake in the stable- of Providence Equity Partners, said it “intends to expand value manager in 1998. Stable value funds accounted for TICC’s investment strategy to primarily focus on private debt or more than 11% of the total, as of 2015 third quarter, $781according billion to inthe assets Stable in Value U.S. defined Investment contribution Association. plans, In investments.”billion in assets TICC’s across current a broad portfolio range of comprises credit strategies CLOs and such its second deal in as many years, Tennessee’s BPV Capital syndicatedas levered loans, loans. high BSP yield,and affiliates structured manage credit, more and thanprivate/ $10 Management bought Cain Brothers Asset Management, opportunistic debt. TICC Management was the investment advisor of publicly traded TICC Capital Corp. (Rothschild Merchant Banking acquired another credit manager, West anin separately institutional managed firm based accounts in Florida. and private Cain Brothers funds. BPV manages Gate Horizons Advisors; see Cross Border.) Through mid- $1.6managed billion, $270 mainly million in fixed in four income, mutual for funds institutional prior to investorsthe deal. The seller was company parent Cain Brothers & Co., issued worldwide, primarily in the U.S., a drop from the same a New York investment bank specializing in the health care Novemberperiod in 2014, 2015, according a total of to$103 S&P billion Capital in IQ. CLOs had been In Canada, wealth manager Richardson GMP acquired fund manager CQI Capital Management from parent In its second deal in as many GMP Capital, which also holds a non-controlling interest in Richardson. A retail and institutional manager, CQI pursues years, Tennessee’s BPV Capital a “macro-driven, quantitatively informed investment Management bought Cain process.”long/short For and example, sector-based its Equity strategies Opportunities based on fund a reading focuses Brothers Asset Management, an on small- and mid-cap North American firms and employs institutional firm based in Florida ofCEO business, Andrew profit Marsh and told market the Toronto cycles. Globe “This andis an Mail opportunity. “We towill gain be ableaccess to toprovide really thesegreat moneymanagers managers,” with one Richardson of the

Richardson, which plans to revamp CQI as a third-party asset industry. BPV, founded in 2001, has evolved from a family biggestmanagement independent platform distribution focused on channels alternatives, in Canada.” said it had already engaged in discussions with U.S. and European asset a mutual fund manager. BPV said it can provide Cain with managers about launching products on the CQI platform. officemarketing, into a distribution registered investor and risk advisor management and more support. recently In Richardson doubled its assets in 2013 to C$28 billion ($21 2014, the company acquired New Jersey-based Skyview billion) with the purchase of Macquarie Group’s Canadian Investment Advisors. retail business, with assets at about the same level last year. A second deal featuring a Tennessee buyer saw Highland In the U.K., Caledonia Investments acquired a 94% stake in Capital Management of Memphis buy Florida-based ICC Seven Investment Management Capital Management, an institutional and wealth manager. assets under management and administration., a London fund Caledonia, manager a and private client firm with £9.5 billion ($15 billion) in The transaction brings Highland’s AUM to $2.8 billion. Steve family of the U.K., bought the shares from insurers Aegon Wishnia, Highland president and managing director, said andLondon Zurich investment Insurance trust controlled by the wealthy Cayzer the deal combines two firms “with complementary areas of than £100 million, including debt. Started up in 2002, Seven expertise” while increasing the client base and investment IM manages an open architecture. The deal values platform the andfirm also at more runs its productyears as line.a vehicle Like toICC, manage Highland the has wealth offices of Plough in Orlando, Chemical own branded funds. In explaining the acquisition, Caledonia Fla.,founder and andMobile, Schering-Plough Alabama. Wishnia Chairman ran Highland Abe Plough; for many he cited its own “long history of investing in successful fund First Horizon National before selling to Argent Financial Group in 2013. Based bought the firm in 2011 from parent managementinclude British businesses” wealth manager and the and “growing bank Close demand Brothers for . multi-asset and multi-manager funds.” Caledonia’s holdings Southern and Southwestern asset managers in 2013 and Aberdeen Asset Management added to its emerging and in Louisiana, Argent Financial Group cut several deals for based Heritage Trust. Advance Emerging Capital. Established in 1996, AEC has a 2104. Last year, Argent also merged with Oklahoma City- Although deals for structured products specialists have frontiervalue orientation markets capabilities and manages by moreacquiring than London-based£400 million in assets in long-only fund of funds vehicles, primarily closed- crisis, there were two additional such transactions in the U.S. end. In its closed-end Advance Frontier Markets fund, for tailedlast year off involvingfrom the periodprivate immediately equity buyers. after In one,the financial Sankaty example, AEC has 61% of its assets with 10 funds, including Advisors Bain Capital, bought four the VinaCapital Vietnam Opportunity and Ashmore collateralized loan obligation contracts (AUM: $1.6 billion) Middle East Equity funds. AEC had been majority-owned from Regiment, the credit Capital affiliate Advisors of , a credit asset manager. since 2009 by Rassmal Investments, a Dubai-based emerging and frontier markets investor. With the addition 8 of AEC, Aberdeen will manage 33 closed-end funds with had by far the highest proportion of assets in £8.5 billion in assets. Frontier market funds suffered net equities, and at 34% it was a good 10 points above their peers in Europe and Asia outside Japan. By 2015. Aberdeen, which was negatively impacted last year by contrast, Europeans and Asians ex-Japan had outflowsits own substantial of nearly $1 emerging billion in markets the first business, three quarters made fourof nearly twice the exposure to real estate as did other bolt-on acquisitions in 2015 (see Hedge Funds/Private North Americans, with 12%. Equity and Wealth). While the report allows that the gains in equities may have In another small U.K. deal, City Financial acquired £200 been due to appreciation as opposed to additional capital, it million in multi-asset funds from Investec Wealth & opined that “current holdings indicate a slowly expanding Investment, marking its second deal in as many years. In

appetitein 2015 may for risk, have as tempered HNWIs indicate some of they that are sentiment. open to equitiesOn the 2014,assets. the City London Financial, firm led acquired by former the executivesIveagh fund with arm Invesco of the becoming a larger part of their portfolios,” although events Perpetual, offers a range of traditional and alternative Guinness family office, also amounting to £200 million in 26%, with individuals citing lifestyle needs and security as strategies. Within France, Natixis reportedly paid €549 flipthe primaryside, cash factors declined in maintaining one percentage such point high tocash drop levels. below million ($630 million) for 71% of DNCA Finance, a wealth and institutional manager with €14.6 billion in AUM. Natixis allocations, the report does note that they pose “a challenge said the deal furthers the “strategy of expanding its multi- Since those cash levels are significantly above model asset between modeling and reality is that “wealth managers may to firms.” One reason the report cites for that disconnect affiliatereturn European model in Europeequity and and eurozone fueling our bond growth strategies, in retail has markets.” DNCA, which pursues long-only and absolute havethe report too narrow suggesting a view that of overallmanagers HNWI should portfolios, “discuss only each was TA Associates. In Italy, Poste Italiane, the national post taking into consideration client assets held at the firm,” with offices in several major European cities. AmongAnima the, onesellers of client’s total wealth picture, including their cash needs.” office,concluded paid an€210 initial million public for offering a 10% stakelast year, in cut the deal credit, particularly among those under 40 and in emerging theas part nation’s of an leading effort to asset expand managers. investment The postalofferings firm, in whichits Significantly, the cash needs of clients include access to availability of credit “is a critical factor when making markets.decisions Worldwide, about initiating more relationships than 37% of with HNWIs wealth said the dominantIn Japan, Mizuho financial Financial services business.Group and Dai-ichi Life Insurance announced a merger of their respective asset That credit is primarily used for investments, including real management groups “to jointly build an asset management management firms” while 60% consider it a “key” factor. business platform that is number one in Asia as well as Japan can at least occur in a more positive environment: The estate. With the financial crisis receding, those discussions interest and around a 70% economic interest in the joint bothventure, in quality which andwill size.”have ¥54Mizuho trillion will ($450assume billion) a 51% in voting AUM. reportturnaround indicates from that the closeperiod to immediately three-quarters after of HNWIsthe crisis. The deal comes amid efforts by the Japanese government to areThose satisfied with the with longest their managersrelationships and (at firms, least a 21significant years) encourage generally risk-averse individuals and institutions to embrace a broader sweep of asset classes. For example, expressed more satisfaction with their managers than their Japan’s $1.1 trillion public pension fund has set aggressive arepeers most in any satisfied other (84%),region. while North American HNWIs targets to double investments in stocks to 50% of the portfolio and lower holdings of Japanese bonds from 60% Amid those broad signs of improvement in client investment to 35%. To lead that transition, the fund hired private equity outlook and their attitude toward managers, the industry itself experienced an active 2015 for deals, broadly in line with the numbers in recent years. The largest transaction veteran Hiromuchi Mizuno as executive managing director with a wealth-related component was a North American andyear, chief Mizuho investment also acquired officer. a Other16% stake Japanese in San pension Francisco- funds affair in which Royal Bank of Canada paid $5.4 billion arebased pursuing Asian investor similarly Matthews aggressive International investment strategies. Capital Last for bank and wealth manager City National Corp. Management (see Cross Border). Angeles (see Cross Border). On the U.S. domestic front, Affiliated Managers Group was the most notable ofbuyer, Los Wealth Management adding a total of $13 billion in assets in its wealth business independent advisors. AMG was joined in the circle of larger viadeals similarly by First sized Republic acquisitions Bank, whichof two paidhigh-profile $115 million and for High net worth investors (HNWIs) entered 2015 Constellation Wealth Advisors. In with a little extra spring in their step, as stock Financial allocations in their portfolios passed cash holdings anEngines independent paid $560 firm, million for The Mutual Fund Store. the mass affluent market, retirement specialist in the first quarter. Equities rose two percentage Hellman & Friedman and points in the quarter to nearly 27% to become the Lightyear Capital, also announced deals for large to mid- leading asset class in HNWI portfolios, according sizedTwo private targets. equity The numbers firms, dropped off from there, with to the 2015 World Wealth Report from CapGemini the next largest spate of transactions involving targets in and RBC Wealth Management. North Americans the $1 billion asset range. There, buyers included Kansas-

INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 9 $7 billion in assets. AMG cited myCIO’s “unique focus on First Republic’s acquisition of majority stake in the Philadelphia-based firm, which has in explaining the purchase. MyCIO referred to the ability Constellation Wealth Advisors corporateto retain its executive independence financial and and “elevate retirement our key planning” next added $6.1 billion in assets and is generationwhole or part of advisors(see Hedge to Funds/Privatepartners.” AMG Equity) also made. minority a “perfect fit with our client base, investments in three firms with hedge fund capabilities in First Republic’s acquisition of Constellation Wealth Advisors geographic footprint and service-

based culture,” Katherine August addedas Katherine $6.1 billion August in de-Wilde,assets and president is a “perfect and fit director with our at clientFirst Republic, base, geographic told analysts footprint during and a 2015service-based second-quarter culture,” de-Wilde, president and director at earnings call. First Republic has total wealth assets of $58 billion, half managed, and 15,000 clients. Established in First Republic, told analysts during Citigroup a 2015 second-quarter earnings call 2007in New as York a multi-family and the San office Francisco by former Bay Area,executives matching from two key markets’s family for First office Republic division, (which Constellation is headquartered has offices in San Francisco). As part of the deal, Constellation partners signed long-term employment contracts. For its well-heeled based Mariner Wealth Advisors, which took a majority clients, Constellation is avoiding bonds at the moment, stake in Pennsylvania’s Vantage Investment Advisors as it Barron’s continued to extend its Northeast presence; and Silvercrest last year he considers the class “almost uninvestible .... a Asset Management, which added to its hometown with Chief Investment Officer Sam Katzman telling presence in the New York metropolitan area with the alternatives, with hedge funds comprising 30% of some of purchase of Jamison, Eaton & Wood. no-returnits wealthier investment clients’ portfolios. at this point.” The firm is a believer in was evident in the sale by government-owned Royal Bank Wealth Enhancement Group by purchasing the shares Inof Europe,Scotland the of continuingits Coutts international fallout from the wealth financial management crisis Lightyear Capital took its majorityNorwest stake in Minnesota’sEquity Partners business to Union Bancaire Privee of Switzerland. Another of Minneapolis. Established in 1997, WEG has $4.7 billion in fromassets another and 10,000 private clients equity in 40-plusfirm, states, with an average wealth business to Stifel Financial Corp. (see Cross Border portfolio of around $500,000. Assets have doubled since Britishfor RBS firmand Barclaysthat’s been deals) restructuring,. Two consolidating Barclays, markets sold its U.S. — Switzerland and the U.K. — experienced multiple domestic said it had been exploring opportunities in the wealth deals, led by Notenstein Private Bank acquiring the client 2007, when Norwest made its investment. Lightyear, which relationships and staff of Bank La Roche & Co. and Towry paying £120 million ($180 million) for Ashcourt Rowan. segment “for many years,” praised WEG’s ability to “provide family-office-qualityfor expansion. WEG said financial it “looked planning forward and advice”to continuing and said that “compelling business proposition” made the firm ripe

Inold the AMG U.S., Wealth the two Partners acquisitions subsidiary. by Affiliated In last Managers year’s second- our strategic plan of adding independent financial advisory Groupquarter brought earnings to callfive that the numberfollowed of both affiliates deals, in Nate its 4-year- Dalton, firms ... and utilizing our capabilities to help them grow.” New York-based Lightyear invests in middle-market North business was now at a scale ($30 billion in AUM) where American financial services companies. AMG“you canpresident start to and leverage chief financial to improve officer, and saidprovide the additionalwealth & Friedman acquire Edelman Financial Services, a high- A second deal featuring a private equity buyer saw Hellman opportunities“and the excellent to the manufacturing businesses” and capabilities pointed tothat the they have profilewith Edelman mass affluent senior firmmanagement with $15 andbillion Lee in Equity assets and “opportunities to build bridges” between its fund affiliates 28,000Partners clients, which across paid the $265 U.S. million H&F will for assumeEdelman ownership in 2013. and the Wealth Partners affiliates.” Dalton noted that “there million. Executive Chairman Ric Edelman told the Wall is a continuing pipeline of firms equivalent in scope and H&F’sStreet Journaldeal reportedly valued Edelman at around $800 scale that we are looking at.” Baker Street Advisors, one of the larger independent San We’re also going that to with begin H&F entertaining as majority the owner opportunity “we’re for In the first transaction, AMG took a majority stake in going to be able to aggressively add advisors and offices. strategies will focus on the 60 markets in which his popular Francisco-area2003 by a veteran firms, wealth with manager $6 billion at in Deutsche AUM and Banka clientele mergers and acquisitions.” Ric Edelman said the growth thatand Goldmanreaches into Sachs Silicon, Jeff Valley. Colin, Theand firmfocuses was on founded “simplicity, in spearhead the search for a new CEO, as Ric Edelman focuses investment-oriented radio show is broadcast. H&F will also founder of the investment advisory group at AMG’s second cost-effectivenessacquisition, myCIO and. As tax-efficiency.” with Baker Street, Colin AMG was assumedalso a co- a on financial education, client services and expanding the geographicfund. footprint. San Francisco-based H&F made the 10 investment via its Hellman & Friedman Capital Partners VII In bicoastal deal with an East Coast target, B. Riley Wealth Advisors has been another active buyer, albeit of Financial MK Capital Like Affiliated Managers Group, Kansas-based Mariner Advisors as it expanded into wealth management. MK Capital, with of Los$700 Angeles million acquired in assets, New had York’san existing muchof a majority smaller stake firms in and Pennsylvania’s with a particular Vantage focus Investment on the NortheastAdvisors (AUM: of late. $1 Last billion), year, whichthat included serves highthe assumption net worth and from the new owner’s investment products and services. relationshipAn OTC Bulletin with Board B. Riley traded and saidstock, its B. clients Riley haswill anbenefit asset management arm through which it runs the B. Riley massan interviewer affluent clients. in 2013 Robert that “we Thomas, would who never founded turn someone the firm inaway 2000 because with a of “card the amounttable, a phone of assets and they a pad have. of paper,” We always told banking unit. California-based United Capital Financial have the big clients. The $10 million, $20 million, $50 million DiversifiedAdvisers bought Equity South fund, Carolina’sin addition McDonald, to an investment Cox & Klugh

Mariner will provide it with more resources while Mariner last year to extend its national footprint. United Capital has clients.said Vantage’s We also “growth have a bunch orientation of $50,000.” aligns perfectlyVantage said with our (AUM: $415 million), one of multiple deals the firm made goal to increase the number of clients we are able to serve $15 billion in AUM and nearly 80 offices throughout the U.S. manager Mariner Holdings, acquired United Capital CEO Joe Duran has been pitching “financial inthree the EastNortheast.” Coast wealth Mariner, managers part of asset between 2012 and 2014. Wealth Management Transactions Another East Coast transaction saw New York’s Silvercrest Asset Management 2011 2012 2013 2014 2015 pay $11.3 million for $1 billion in assets Number of Transactions 56 60 57 49 72 managed by New Jersey’s Jamison, Eaton & Wood. The terms include cash, notes, Combined Value ($B) $1.1 $3.6 $3.3 $4.0 $4.2 stock and an earnout payment. The deal Total Seller AUM ($B) $80 $240 $371 $412 $264 — which gives Silvercrest $19 billion in Average Deal Size ($M) $19 $60 $58 $81 $59 assets in total managed for individuals (targeting those with $10 million or more Average Seller AUM ($B) $1.4 $4.0 $6.5 $8.0 $4.0 in investable assets) and institutions — is in line with the company’s strategy of Source: Berkshire Capital Securities LLC building its presence in the New York area. In Silvercrest’s earnings call last

wealth managers, a concept that addresses life decisions, March, CEO Richard Hough said the company has been in life management” to differentiate the firm from other “more discussions the past year” with potential targets “than probably in the past five years.” The deal marks Silvercrest’s inFinance. addition “That to financial means sometimes management. you “We want think to spend people more first acquisition since going public in mid-2013, although it caremoney more and about make maximizing choices that their might lives,” not optimizeDuran told how Yahoo much made five acquisitions during 11 years as a private firm. In you have but will make sure you have the best possible addition to New York and New Jersey, Silvercrest has offices Focus Financial Partners added to its inIn Boston,New Jersey, Los AngelesBeacon andTrust two Co. locations cut its second in Virginia. wealth management deal in as many years by acquiring MDE Group, in the process doubling assets to $2.5 billion. life along the way.” Established in 1988 and acquired in 2011 by New Jersey’s affiliate network withBuckingham multiple investments, Asset Management including three. Provident Financial Services as part of the bank’s effort small and geographically diverseClassic deals Capital through, is based its St. in Louis-New to expand its wealth management services, Beacon has basedJersey partnerand has firm,more than $200 million in AUM. In selling his seen its AUM grow from $300 million since 2009. In One of the firms acquired, last year’s second quarter, Provident doubled its wealth issue. 26-year-old firm, founder Jay Leonard resolved a succession management income to $5.1 million, or 30% of noninterest A merging of Midwest and Northeast wealth managers income, an increase the bank attributed primarily to saw Wisconsin-based Bronfman E.L. Rothschild acquire Highline Wealth Management of the Washington, D.C., area, adding $1.4 billion in AUM to the $2.2 billion it already the MDE acquisition. “As the yield curve flattens, we will continueand CEO Christopherto seek fee income Martin opportunities, wrote in Provident’s specifically latest in nine cities and 1,400 clients, said they will maintain inannual the wealth report. management A second all-New space,” Jersey Chairman, transaction President saw managed.their growth The strategies firms, which in their have respective a combined geographies. presence Peapack-Gladstone Financial Corp. acquire Wealth Management Consultants, which has $2 billion in assets and a specialization advising corporate executives in a Theand CEOcombined of the firmcombined will operate company, under told the the Bronfman Washington E.L. RothschildPost that the name. transaction Neal Simon, adds talentfounder and of providesHighline more(in 2002) and deferred compensation. Peapack is a small, publicly Fidelity Investments varietytraded bankof relevant with $3 financial billion inareas assets such in asits retirement private wealth plans that manage client-related administrative functions. “It sets management division. In 2014, fee income in the division negotiating clout with firms such as rose 10% to $15.2 million, or 17% of total income. go after more merger and acquisition opportunities, enables us on a path for even more growth,” he said, “enables us to INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 11 acquired a small Wisconsin wealth manager, Lake Country usWealth to attract Management more advisors.”. Prior to the deal, Bronfman The U.K.’s wealth management In a small Pennsylvania deal, Wescott Financial Advisory industry continued its steady Group added $120 million in AUM to the $2.2 billion it already managed by acquiring Goodstein & Associates. post-crisis consolidation with Founder Sandra Goodstein said the deal “allows me multiple deals, the largest being The acquisition is part of Wescott’s effort to expand in focusthe Philadelphia on my clients area. — Anotherthe part ofregional the job transaction I love the most.” saw Towry’s £120 million ($180 million) BlueCreek Investment Partners of Alabama and Keel Point of Virginia merge to form a family and institutional takeover of Ashcourt Rowan will be owned by client-investors and management, also office with $1.5 billion in AUM. The combined firm, which banking industry. Notenstein said it “aims to play a key role has offices in Kansas City and Washington, D.C., with in the consolidation process now under way in the Swiss management suggesting it might add offices to service Julius Baer “theirasset manager geographically Westwood dispersed Holdings clients.” Group Assets of Dallasat the two acquired independent wealth manager Fransad Gestion firmsacquired have wealth quadrupled manager over Woodway the past eightFinancial years. Advisors In Texas, financial sector.” In a second all-Swiss deal,

(AUM:the deal CHF will 1.3 strengthen billion), describing its position the “in firm the independentas a “profitable of Houston. Brian Casey, president and CEO of Westwood, businesswealth management [that] has enjoyed market healthy in Switzerland growth.” and Julius expand Baer itssaid said1982 “establishing and has $1.6 a billion presence in AUM. in the Publicly Houston traded market Westwood has beenhas more a priority than $20for manybillion years.” in AUM, Woodway including was $3.7 founded billion in an interview with Bloomberg following the deal, CEO Boris in 12 Westwood-branded mutual funds. Westwood will geographicCollardi said footprint Julius Baer in French-speaking would remain on Switzerland.” the lookout for In pay $32 million, subject to adjustment at closing for the additional acquisitions domestically and globally, including considerations, as well as an earnout payment capped at amount$15 million. of Woodway’s working capital and other financial potentiallyThe U.K.’s wealth a “big elephant.”management industry continued its steady post-crisis consolidation with multiple deals, the largest With the $560 million acquisition of The Mutual Fund being Towry’s £120 million ($180 million) takeover of Ashcourt Rowan. The takeover price represented an 88% nearly $10 billion in AUM and 84,000 accounts to its own premium to Ashcourt’s average share price in the three Store,401(k) Financial business. Engines MFS, with adds its a network mass affluent of nationwide advisor with months prior to the offering. The deal adds £5 billion in assets to the £6 billion Towry already managed from 19 ability to provide face-to-face contact for what has been advisorya technology-driven offices, also business greatly expands model. “TheFinancial big companies Engines’ offices across the U.K. and makes the firm a top-20 wealth of Financial Engines, told RIABiz.com. Financial Engines manager.other wealth The transactions firms said the since deal 2013, will provide including clients the 2014 with wantsoffers retirementus on-site,” servicesLawrence to Raffone,650 companies, president including and CEO 142 morepurchase services of £1.5 and billion investment of private options. client Towry assets has from made Baker five on the Fortune 500 list. The company, traded on Nasdaq, Tilly. The acquisitions have been funded by an aggressive capital raising in 2013 by Palamon Capital Partners, the saiddeal MFSwas cementedwill deliver with “significant MFS owner earnings Warburg per share Pincus and analysts speculated that Towry may have bulked up on accretion”management estimated and will at leave 25% Warburg in 2016. withThe cash-and-shares about a 12.5% London-basedAshcroft to make private itself equitya more firm attractive that owns takeover Towry. target. Some shareholding in Financial Engines. Warburg was involved in one other deal last year (see Cross Border). In a second deal, Standard Life acquired established Northern England wealth manager Pearson Jones from Skipton Building Society as part of the launch of a and pressure from U.S. and European governments for nationwide advisory business, adding £1.1 billion in assets. Betweentransparency, post-financial-crisis Switzerland’s wealth stresses industry on profitability has been reference to the retirement slice of the advice business, played out in Notenstein Private Bank’s acquisition of the In announcing the launch and the deal, Standard Life made undergoingclient relationships a significant and staff metamorphosis. of Bank La Roche Last year, & Co. that The “a generation of individuals that will see advice as an Notenstein La Roche Private Bank sayingessential the service. growth This of defined means contributiondemand for advice plans hasis likely created enlarged firm, , has CHF 36pressures billion ($39on Swiss billion) private in AUM, bankers with as CHF a tax 6.5 evasion billion derivedscandal toNewton significantly, with £3.6 exceed billion supply.” in AUM In a at larger the time. wealth In 2014,deal in the frominvolving Bank U.S. La clientsRoche. ledNotenstein its former is itselfparent, a refugee Wegelin of & the Co., to 2013,company Standard paid £390 Life acquiredmillion for the Ignes private Asset client Management business of . shut down three years ago. Notenstein is now a subsidiary The various transactions underline the “dramatic of Swiss bank Raiffeisen Group. Raiffeisen CEO Pierin recent years “from being Europe’s largest mutual insurance and strengthens Notenstein’s position in the Swiss private transformation”company to one focusedthat Standard on providing Life has investment been undergoing solutions in 12Vincenz said the deal is part of its “diversification strategy” the U.S. wealth unit of a retrenching Barclays for a price Gerry Grimstone explained in the 2014 annual report. analysts pegged in the $200 million to $300 million range. to customers and clients around the world,” as Chairman Sir Aberdeen Asset Management acquired Parmenion Canadian banks and asset managers, which since the Capital Partners (AUM: £1.9 billion), a provider of

financialwith Sun crisis Life Financial have capitalized of Toronto on their cutting strength two diverse to expand customized investment solutions to more than 900 financial globally, accounted for four significant deals in the U.S., advisorythat blends firms both via active an electronic and passive platform. investments, In September, shifting acquirer Fiera Capital Corp. and Royal Bank of Canada, forweighting example, based the 9-year-oldon market firmconditions. introduced In the a productyear through transactions.the latter of which Sun Life paid was $5.4 joined billion by for Montreal-based City National serial March 31, 2015, Parmenion’s AUM grew 69%. Aberdeen Corp. called the acquisition part of its strategy to “capitalise on important wealth management component. Within Europe, where of major Los Angeles pickings in have a bank thinned deal thatin the incorporated wake of numerous an online investment solutions. Aberdeen made four other bolt- post-crisis asset management divestitures by banks, the advancementson acquisitions in in financial 2015 (see technology Hedge Funds/Private systems” to Equity deliver and sale by government-owned Royal Bank of Scotland of its Money Management). A small U.K. deal saw Walker Crips Coutts international wealth management business to Union Group buy Barker Poland Asset Management, adding Bancaire Privee was notable. £230 million in assets to the £1.8 billion it already managed. Activity was slow in volatile emerging markets, where just under management and administration. The numerous a handful of deals took place. China, an ongoing center of London-baseddeals in recent Walkeryears aside, has set the a U.K.’s goal ofwealth £5 billion business in assets cross border asset management activity, was quiet, although remains fragmented and ripe for continued consolidation, Aberdeen Asset Management made news by capitalizing with many of the transactions being driven by the bottom- line squeeze from government reforms surrounding manager in that nation. In India, the only deal involving transparency and fees. onan acquisitionreforms to establishby a non-domestic the first wholly player owned saw Nippon foreign fund Life Insurance raise its stake in the nation’s largest asset manager, Reliance Capital Asset Management Cross Border America, Italian asset manager Azimut assumed 50% of LFI Investmentos, a small Brazilian wealth manager.. In Latin Mizuho Financial Group’s acquisition of a 16% stake in San For the second consecutive year, cross border ThereFrancisco-based were several Asian noteworthy specialist transpacific Matthews Internationaldeals: dealmakers were taking a long-shot run at the Capital Management; Nomura Holdings’ end-of-year record year of 2007, when $1.9 trillion worth of $1 billion purchase of the 41% stake in Kansas City-based such transactions took place. In the first half of fund manager American Century Investments held by 2015, the number stood at $632 billion, with the Canada’s CIBC; and Janus Capital Group’s investment third-quarter tally adding $428 billion, according in Australian unconstrained bond manager Kapstream to Thomson Reuters. Although the final number Capital. Henderson Group joined Janus in expanding in fell short of that 2007 high-water mark, the $1.6 the Australian market by cutting three deals for local asset trillion in cross border deals last year represented managers, including boosting its stake in 90 West Asset the second-highest total ever, accounted for one- Management. third of overall M&A value, and was a 27% increase One of the two largest cross border deals featured a over a robust 2014. By comparison, in 2009, the complex mingling of two of Europe’s largest banks and value of all cross border deals hit a recent low of $537 billion. twoGeneral high-profile Atlantic andNew Warburg York private Pincus equity signed players, a preliminary as Notwithstanding the challenges in emerging markets, some Santander,agreement UniCreditto combine and UniCredit-owned affiliates of private Pioneer equity firms protectionist rhetoric in the U.S. presidential race, and a Investments and Santander Asset Management (SAM). sharp downturn in global trade, the M&A data indicate that General Atlantic and Warburg teamed up to pay €1 billion globalization is not only alive and well but thriving. Within the asset management industry, companies continued to have €400 billion ($435 billion) in AUM and create a aggressively seek out new markets and partners in their for a 50% stake in SAM in 2013. The combined firm will drive for growth and enhanced capabilities. But American “comprehensively global firm with capabilities and client had a relatively subdued presence on the buy side last relationships around the world,” including “substantially firms,year. There with thewere currency two major and exceptions credit winds that at also their involved back, enhanced economies of scale.” Specifically, the combined General Atlantic and Warburg firmwhere will half have the a assets presence are based.in more than 30 developing and Pincus teaming up with Santander and UniCredit to developed markets, including a “leading position in Europe,” significantcombine the U.S. two assets: European banks’ asset management businesses; and TA Associates and Reverence Capital billion, establishes Pioneer Investments as the holding joining hands to buy the Russell Investments asset Thecompany deal, whichfor 100% valued of the the U.S. combined business firm (AUM: at around $69 billion) €5.4 management business from the London Stock Exchange. and two-thirds of the dominant non-U.S. business. UniCredit In an additional deal of some scale with a U.S. buyer and and the two private equity companies will split ownership of assets but a European seller, Stifel Financial Corp. acquired Pioneer Investments evenly while Santander assumes one-

INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 13 third of the non-U.S. unit. To avoid regulatory complications Victory related to its failure to pass Federal Reserve stress tests, Capital Management’s acquisition of Munder Capital Santander structured the deal to carve out a U.S. operation InManagement 2014, New York’s. Reverence helped finance Canadian banks and asset managers continued their inmanagement which it holds team. no Newsinterest. reports However, quoting the insiderscombined said aggressive expansion outside the domestic market with firm will operate as a one global entity run by a single a focus on the U.S., as strategic imperatives overcame €1.1 billion in cash as part of the transaction. Warburg was the weakness of the currency. Aside from the limitations theinvolved private in equityone other firms deal and last Santander year (see will Wealth) pay UniCredit. imposed by a relatively small domestic market, Canadian asset managers have also come under pressure as some The second megadeal also featured two U.S. private equity of the nation’s larger institutional investors begin to buyers, as TA Associates and Reverence Capital paid the assume greater internal management of their assets. For example, Caisse de depot et placement du Quebec, the million in deferred payments) for the Russell Investments nation’s second-largest pension fund, has in recent years Londonasset management Stock Exchange business $1.15 (AUM: billion $266 in cash billion). (including Reverence $150 transitioned to managing in-house the vast majority of its C$241 billion ($180 billion) in assets. The major North American transaction, Royal Bank of Canada’s $5.4 billion cash- Cross Border Transactions City National Corp., was a bank-driven U.S. - INTERNATIONAL 2011 2012 2013 2014 2015 and-shares purchase of Los Angeles-based wealth element. CNC has $49 billion Number of Deals 21 22 27 21 27 dealin AUM that and incorporated another $12 a significantbillion under Value ($B) $2.8 $3.0 $3.9 $5.2 $3.5 administration, with assets growing 10% a year. Additionally, CNC has a stronghold INTERNATIONAL - INTERNATIONAL 2011 2012 2013 2014 2015 New York and San Francisco. As of the Number of Deals 27 26 22 20 27 inthird three quarter critical of markets:2015, RBC Los generated Angeles, 19% of its revenue in the U.S. while global Value ($B) $2.4 $1.7 $3.9 $6.4 $5.2 wealth management (including general asset management) accounted for 11% TOTAL 2011 2012 2013 2014 2015 of earnings, with wealth earnings having surpassed the C$1 billion mark ($750 Number of Deals 48 48 49 41 54 million) in 2014. Value ($B) $5.3 $4.7 $7.8 $11.6 $8.7 RBC President and CEO David McKay, who Source: Berkshire Capital Securities LLC refers to the U.S. as “our second home

after the deal that the combination “will market,” told shareholders several months the coming decade in the most attractive segment of the valuing Russell at around seven times EBITDA (earnings position RBC to expand significantly over saidbefore its interest, minority taxes, investment depreciation was “significant.” and amortization), The deal, includes Russell’s consulting unit, with $2.4 trillion in assets mostadvisors attractive in the U.S.— and, to harness yes, competitive CNC’s private — financial and commercial market under advice. TA Associates said Russell’s “investment and inbanking the world.” skills, He “services touted thewe currentlyability of RBC’scannot 2,000 offer financialto our implementation operations, as well as its orientation to multi-asset and solutions investing, will continue to be a leading wealth manager in Canada, with its share of the high 350,000net worth [U.S.] market wealth having management climbed four clients.” percentage RBC is pointsthe in the four years to 2014 to 19%. Overall AUM registered differentiator and driver of growth.” Russell’s AUM includes average annual growth of 15% between 2012 and the third a mix of equities, fixed income and alternatives. quarter of 2015 to top C$500 billion. In 2014, LSE paid $2.7 billion for the Russell business withthe rest an eyeof the on business the Seattle soon firm’s after large closing and thathigher-margin deal, with numerous potential suitors lining up in a lengthy process indexing business, which LSE retains. LSE began shopping Sun Life FinancialRyan cut two Labs deals Asset for Management U.S.-based fixed, a incomeNew that culminated last October. One Chinese suitor, CITIC managers specializing in liability driven investment (LDI). Group, was reportedly willing to pay a premium price The first was for of up to $1.8 billion until its plans were derailed by the York firm that manages $5.1 billion in assets in a range of turmoil in China’s markets, including a local insider trading LDIincreasingly strategies, popular as well risk as total management return strategies. tool for matching For pension investigation in which its securities arm was a target. fundsfuture as liabilities well as insurers,and assets. LDI In strategies discussing have the dealbecome with an Boston-based TA Associates, a prominent asset manager clients, Ryan said it would now “have access to resources investor, also acquired a majority stake in Keeley Asset and client service support that did not exist as a privately Management last year while selling its interest in First Eagle Investment Management (see Money Management). party institutional business in Canada, said the acquisition held company.” Sun Life, which in 2014 launched a third- 14 and its expansion in the U.S. “is the next step in our Sun Life Investment Management, specializes in private-asset-class pooled A final North American deal growth.” That third-party business, involved a U.S. buyer and funds and LDI strategies for institutions. Prime Advisors, a specialist in customized portfolios for the another niche seller: Raymond Suninsurance Life followed industry, up primarily on the Ryan in the deal U.S. by Based acquiring in the Seattle area, Prime was founded in 1988 and has $13 billion in James Financial’s acquisition of an established Toronto-based AUM.generating As in athe 5.8% case return of Ryan on Labs, shorter-to-intermediate Prime will operate as a subsidiaryduration assets of Sun and Life 11.1% Investment. on longer-duration In 2014, Prime municipals, reported exchange traded fund asset attributing the solid results to “our decision to remain fully allocation specialist, Cougar face of rate hike expectations. Patpatia & Associates has investedpegged outsourced with a slight assets bias bytoward U.S. insurers longer duration” at $1.3 trillion in the as Global Investments of 2014, an 18% increase from the previous year and 23% of general account insurance assets. Bonds, mainly U.S., paid C$560 million ($455 million) for Toronto real estate compriseadvisor Bentall 81% of Kennedy outsourced Group assets. (see In Real a third Estate) deal,. Sun Life of that growth has been driven by its association with marketLPL Financial the 23-year-old, where it firm was enteredincorporated six years into ago. the Much“model

Fiera Capital Corp. buy Samson Capital Advisors, a New James, Cougar will become a subadvisor for the company’s Another Canadian-U.S. fixed income deal saw Montreal’s wealthEagle Asset portfolios” Management platform unit.in 2010. Raymond As part James’ of Raymond asset more than $17 billion in AUM in the U.S. while bringing its management unit has been growing strongly, with record Yorktotal AUMfirm with to C$96 $7.6 billion. billion Fiera in AUM. paid The more deal than gives $33 Fiera million in cash and shares, with additional earnout and incentive over the same period in 2014. AUM of $70 billion as of its 2015 fiscal third quarter, up 8% payouts of up to $15 million due over five years. Founded reverberate in the largest European wealth deal, as bailout inand 2004, high-quality Samson bonds;is a global its assets,fixed and primarily currency municipals, income Sevenrecipient years Royal later, Bank the offinancial Scotland crisis sold continued its Coutts tointernational manager focusing on uncorrelated strategies, tax efficiency wealth management business to Union Bancaire Privee. avoided high-risk instruments from Detroit and Puerto Rico. have tripled since the end of 2004, while the firm has at the time of closing, expected to be completed by 2016. In the latest annual report, Fiera Chairman and CEO Jean- Pricing on the deal will be determined “in part” by AUM Guy Desjardins said the acquisition establishes a “strong foundation [in the U.S.] for our proprietary strategies. This RBSAUM said at the it “anticipatestime the deal receiving was announced. a premium.” It marked Coutts’ the internationalsecond opportunistic business deal had UBP CHF has 30 billionconcluded ($31 at billion) the hands in isclients a significant “greater step access as we to equitieswork towards and other raising investment our profile bank acquired the Swiss-based wealth business of Lloyds as a North American leader.” Samson said the deal will offer ofBanking a troubled Group U.K.. RBSfirm: will In 2013, continue the toGeneva-based own Coutts’ privateU.K. Fiera said it will merge Samson with another U.S. holding, business, in line with its domestic focus. sectors,”Wilkinson as wellO’Grady as enhanced, to create fixed a wholly income owned strategies. subsidiary. Wilkinson, acquired in 2013, pursues global investment strategies for wealthy clients and institutions. Samson CEO further developing our wealth management business and Benjamin Thompson will become president and CEO of UBP said the acquisition “confirms our commitment in Fiera’s U.S. asset management unit. The Coutts business will add bulk to UBP’s existing wealth representsoperations ain significant Switzerland milestone and Monaco in our while growth extending strategy.” another niche seller: Raymond James Financial’s the Middle East and Asia. In particular, Nicolas Faller, CEO Aacquisition final North of American an established deal involved Toronto-based a U.S. buyer exchange and itsof UBPpresence Institutional “significantly” Clients, in told Central Bloomberg and Eastern the deal Europe, will traded fund asset allocation specialist, Cougar Global Investments (AUM: $1 billion). Cougar, which serves high entering Asia is huge. The question facing some companies net worth and institutional clients, employs a proprietary allow it to “reach critical mass in Asia,” adding: “The cost of investment process to construct long-only, globally is,publicly how long traded can Shanghai they stay wealth and burn manager cash?” NoahSeparately, Holdings UBPin which announced Noah will a “strategic gain access cooperation” to UBP’s global agreement research with diversifiedto 12% and ETF downside portfolios risk in management. four mandates, The with head minimum of targetedRaymond “acceptable James’ Canadian rate[s] business, of return” Paul ranging Allison, from told 6% distribution in the Chinese wealth market. the Financial Post the deal “strengthens our platform and and product capabilities while the Swiss firm enhances its ability to deliver a greater variety of investment choices to Switzerland’s Vontobel Holding expanded its European is based in Canada, 90% of its asset base is in the U.S. — a TwentyFour Asset Management, a our Canadian clients and other investors.” Although Cougar INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 presence with two deals, in the first acquiring a 60% 15 stake in London’s AUM. Vontobel will acquire 100% over time for a total York and San Francisco. Barclays acquired the business from fixedconsideration income manager of £99 million. with £4.4 Vontobel billion said ($6.5 the billion) deal extends in in a dozen major cities, including Chicago, Los Angeles, New acquirer of late, including last year’s $150 million deal for Lehmanbrokerage Brothers Sterne inAgee 2008. Stifel has been an aggressive itsoperate fixed independently.income portfolio TwentyFour as well as its specializes U.K. business. in asset- In line Mason Investment Counsel & Trust. With this transaction, with Vontobel’s “multi-boutique structure,” TwentyFour will Stifel is buying into a higher and netthe worthpurchase clientele in 2014 than of theLegg one it typically serves. Stifel said the acquisition would be backed securities and unconstrained strategies. In the first immediately accretive and add between $200 million and half of 2015, assets in Vontobel’s fixed income boutique (one $325 million in revenue. In 2013, as part of an effort to of five under the firm’s asset management umbrella) rose 71%142 billion to CHF ($144 18.3 billion,billion) with in assets more under than one-third management owing and more than half the number of markets in which it offers toadministration. the TwentyFour acquisition. Overall, Vontobel has CHF improvewealth and profitability, asset management Barclays announced services. a plan to cut by A second transatlantic deal in the growing infrastructure space saw Hunt Companies of Texas buy a 50% Cross Border Transactions by Domicile and Type Amber Infrastructure Group, which develops BUYER: U.S. INT’L INT’L 2015 TOTAL interest in London-based SELLER: INT’L U.S. INT’L transportation, renewable energy Wealth Management 3 1 12 16 and financesurban development social infrastructure, projects in Australia, Canada and Europe. The total Money Management 6 9 11 26 value of these projects, most involving Other 6 2 4 12 public-private partnerships, is more Total 15 12 27 54 than £12 billion. Amber also provides management services on more than 80 infrastructure projects, the majority of BUYER: U.S. INT’L INT’L 2014 TOTAL which are held in funds managed by SELLER: INT’L U.S. INT’L subsidiary Amber Fund Management. Wealth Management 0 2 3 5 The funds include the £1.1 billion ($1.7 billion) International Public Partnerships Money Management 4 8 10 22 global infrastructure fund, which Other 3 4 7 14 Total 7 14 20 41 and targets an internal rate of return tradesof 8% toon 9% the and London dividend Stock growth Exchange of Source: Berkshire Capital Securities LLC

“atengaged least” in2.5%, the development,in line with long-term investment, inflation forecasts. Privately held Hunt is The Swiss bank executed a second cross border deal by assets and has a long history of public-private partnerships. acquiring Finter Bank Zurich, owned by Italmobiliare, In 2014, for example,management the company andwas financingselected by of thereal city of El Paso, Texas, to develop a 31-acre transit-oriented mixed- the financial holding company for the wealthy Pesenti familyenhance of itsItaly. Swiss Finter business, has offices including in Switzerland in the Italian-speaking and CHF 1.6 use real estate project. Citing the “significant public sector billioncanton in of AUM. Ticino, Vontobel and “create said athe solid CHF platform 80 million for dealdecisive will infrastructure opportunities in North America,” CEO Chris Hunt said the addition of a partner “with extensive expertise in all facets of infrastructure significantly expands the capabilities growth in private banking in its focus market of Italy,” where to Hunt’s platform.” Amber said there are “a number of VontobelItalmobiliare already will managessupport Vontobel’s CHF 6 billion expansion in assets. in As Italy part and projectsIn the mutual in the funds U.S. on sector, which La we Francaise will partner of Paris immediately.” assumed of what Vontobel described as a “long-term commitment,” Fred Alger transaction involving an Italian asset saw UBS acquire Management. For Fred Alger, the deal provides distribution in investSantander’s CHF 10 Milan-based million in the wealth Swiss unit, firm’s with shares. €2.7 billionAnother in a 49.9% stake in the London unit of New York’s AUM. UBS said the deal will enhance its growth in Italy access to Alger’s growth-oriented U.S. equities expertise. Alger’s and boost its position in the wealth management pecking Europebest-known while fund, La Francaise Alger Spectra, (AUM: is €48 a large-cap billion/$54 growth billion) vehicle gains order from No. 6 to No. 4. UBS said AUM in its Italian wealth with more than $5 billion in AUM. The deal is in keeping with Tages Capital, an alternatives manager, and Forum businessThe were grew several 9% transatlantic in the first half deals of 2015.of note, including partnershipsPartners Investment La Francaise Management has established, a real with estate such investment European Barclays’ sale of its large U.S. wealth unit to Stifel Financial firms as Credit Mutuel Corp. The British bank has been restructuring its entire Nord Europe, a cooperative bank operating in Belgium, business, including wealth management. Stifel gains a manager. La Francaise is majority-owned by manager, BNY Mellon Meriten France and Luxembourg. Another high-profile American asset 16business with $56 billion in assets, 180 advisors and offices , sold its German affiliate, Investment Management, to Paris-based Oddo & Cie. The addition more than doubles Oddo & Cie’s AUM to €41 billion. buyer saw Shanghai-based conglomerate Fosun pay €210 Meriten manages a European-focused investment strategy Amillion European ($230 wealth million) deal for featuring German a private high-profile bank HauckChinese & Aufhauser. The bank, based in Frankfurt and with more which also focuses on European investments, said it aims to than €3 billion in assets, said its new owner will open up via fixed income, multi-asset and quantitative vehicles. Oddo, markets and the range of asset classes. provide access to European markets. Fosun quickly followed build “a leading investment manager” covering European “newup that international transaction prospects”by making whilea €528 Fosun million said bid the it ultimatelydeal will In the structured products arena, Rothschild Merchant dropped for another German private bank, BHF Kleinwort Banking, the private equity and private debt arm of France’s Benson, in which it acquired a minority stake in 2014. The Rothschild Group Novo Banco, the specialist West Gate Horizons Advisors, which manages Banco Espirito Santo, , acquired Los Angeles-based credit firmbut the also bid, made along a play with for others, Portuguese was rejected bank as too low. Fosun structures. Rothschild said the acquisition combines West “goodis controlled bank” createdby billionaire from theGu Guangchang,failed who has built a $1.5 billion in assets across five collateralized loan obligation

Gate’s “specialized expertise in US leveraged loan credit” with large portfolio of financial services, industrial, property and health care firms, pursuing a model similar to Warren Buffet’s A second U.S.-Australia tie- Berkshireof non-Chinese Hathaway investments while employing in just the a six significant months through amount of leverage. Last year, that activity included $6.5 billion worth up involved Legg Mason’s July, when the Hauck & Aufhauser deal was announced. purchase of a 75% stake (Ininvestigation December, caused Guo’s briefsome “disappearance” observers to question and subsequent whether involvementGerman and Europeanwith Chinese regulators regulators would regarding nix Fosun’s a financial purchase in RARE Infrastructure, a

specialist in global listed ofIn Hauck2014, one & Aufhauser.) of the major stories in the money management sector involved the abrupt departure from PIMCO of infrastructure investments legendary bond investor Bill Gross and his move to Janus Capital Group. The Denver-based fund manager quickly with $7.6 billion in AUM followed up that coup by acquiring an ETF provider, VS

Holdingsacquisition — designed a deal that to wasbolster widely Gross’ interpreted hand when as itproviding paid some its own focus on European senior leveraged loan credit. For Gross$85 million with an to ETFacquire platform. a 51% Last interest year, in Janus Kapstream made another Capital, an and banking relationships. Prior to the deal, Rothschild The company has the option to acquire the remaining 49% of itsmanaged part, West nearly Gate €2 will billion benefit in private from Rothschild’s debt. In the distributionsecond Australian-basedKapstream at a future global date. unconstrained For Kapstream fixed co-founder income manager. Kumar quarter of 2015, European leveraged loan issues topped €47 the U.S. during the same period. Palghat,reunion whowith wasGross: head Palghat of PIMCO’s will become Asia-Pacific co-manager portfolio of thefor billion, according to AFME, around one-fifth the amount in fiveJanus years Global before Unconstrained founding his Bond firm fund in 2006, started the anddeal managed creates a In an all-European deal, Aegon, through its asset by Gross. management unit, paid €112.5 million for a 25% stake in La Banque Postale’s asset management arm as part of “a Kapstream has $6.6 billion in AUM and serves investors strategic long-term partnership to jointly develop and sell primarily in Australia, with most of the assets derived through that nation’s massive Superannuation funds. The in AUM, with 40% managed for its general account and addition of Kapstream’s assets gives PIMCO $8.7 billion investment products.” Aegon has more than €340 billion in Janus Global Unconstrained. Kapstream also provides three-quarters in fixed income. With €150 billion in AUM, La inJanus’ global expanding macro fixed international income AUM, business including with $1.5a foothold billion Banque Postale is the fifth-largest asset manager in France. in Australia. Kapstream investor and Sydney-based asset The firms touted the merging of Aegon’s “global investment manager Challenger Limited said its sale was driven expertise”In 2014, Aegon and La sold Banque its longtime Postale’s minority “extensive stake distribution in a joint network” in France, where it has 17,000 “pointsLa Mondiale of sale.” . including a new distribution arrangement with Janus and At the time, Aegon said that venture, which included life byKapstream. the “opportunity Dick Weil, to CEObuild of a Janus,relationship” said the with deal Janus, “furthers ventureinsurance, with pensions another and French savings firm, products, insurer “no longer

our commitment to expand our fixed income capabilities as matchespart of an our effort ambitions.” to “grow The and Dutchdiversify insurer, its customer pension base and assetand part of the firm’s intelligent diversification strategy.” Janus has manager noted that the initiative with La Banque Postale is 19%A second of its U.S.-Australia $190 billion intie-up assets involved in fixed Legg income. Mason ’s purchase of a 75% stake in RARE Infrastructure, a specialist to provide fee-based, capital-light products.” The two firms in global listed infrastructure investments with $7.6 billion pledged to create diversified products “to meet the challenges of historically low interest rates” and new global products shareholding of employees as well as most of the minority coveringINVESTMENT fixed MANAGEMENT income andINDUSTRY equities. REVIEW | 2016 in AUM. The deal involves Legg buying most of the majority 17 Pacific Current Group shareholdingCurrent disclosed of Australian an upfront multi-boutique A$112 million firm ($80 million) yearrange Henderson of eight to entered12 times the EBITDA market). (earnings Without before disclosing income, deal cash payment plus. Although an earnout Legg of did up not to A$42 provide million a price, for Pacificselling valuation,taxes, depreciation Henderson and said amortization). all three fell Thewithin two its Perennial comfort alternatives in what the company called a “high-growth asset also equity investments, add A$10.7 billion in AUM (80% 26% (it retains 10%). The deal expands Legg’s lineup of liquid businesses, which manage primarily fixed income but an uncorrelated investment that can provide stable returns, class.”and RARE’s Infrastructure assets — has which gained have favor more among than doubled institutions since as institutional), tripling Henderson’s assets in Australia. 2011 — include investments in developed and developing Following the various deals, Asia-Pacific accounts for 11% of Henderson’s total AUM of £89 billion ($138 billion). Hendersonproducts while said “providing Perennial’s a capabilitiesbroader platform “will significantly for future markets.and Canada Joseph into Sullivan,additional chairman markets and in the CEO U.S., of AsiaLegg, and said his extend” its offerings to Australian clients beyond global firm will leverage RARE’s existing client strength in Australia products under its own name. growth in the market.” Henderson will rebrand the acquired Europe. Speaking on RARE’s Website, Nick Langley, Co-CEO, calledsustainability the partnership for our clients “a natural .... and progression” access to a deep,that allows well- his which with A$154 billion in assets under management, firm to “retain our independence .... provides continuity and The deal also forges a link between Henderson and IOOF, and platform business. Although small in population, resourcedacquired in support 2014, Martin network.” Currie RARE of willScotland. join Legg’s portfolio administration,Australia is an attractive advice and market supervision for asset is managersa top-five advicedue to a of seven other affiliates, including a second non-U.S. holding Superannuation program that makes it is the fourth-largest pension market in the world and one of the fastest-growing. based Mizuho Financial Group assumed a 16% stake in a Inprominent a third transpacific San Francisco-based deal heading Asian the investor, other way, Matthews Tokyo- on the U.K. market, which after the Australian deals dropped International Capital Management. Founded in 1991, Hendersonfour percentage has been points diversifying to 56% of awayAUM. fromIn 2014, its dependence the company Matthews has more than $26 billion in AUM in a range of acquired Milwaukee small- and mid-cap manager Geneva Capital Management, boosting its U.S presence. The deals are expanding its client base outside the U.S. in recent years. The regional, country-specific and specialized funds and has been strategy announced in early 2014. $7 billion), which seeks long-term capital appreciation. As of in line with Henderson’s five-year “Growth and Globalization” largestmid-year such 2015, fund the is fund22-year-old had one-third Matthews of its Pacific assets Tiger in China (AUM: Within Asia, deal activity was quiet, the most notable one the MSCI All Country Asia ex-Japan Index, and 18% in India Reliance Capital Asset Management, India’s largest asset and(overweight Hong Kong, the orindex nine by percentage nine points). points Still, underweight in a September involving Nippon Life Insurance raising its stake to 49% in 2015 interview with CNBC, Andy Rothman, Matthews original 26% stake in 2012 when RCAM had $19 billion in investment strategist, made a case for China, acknowledging managerAUM, paid (AUM: a total $37 of nearly billion). $290 Nippon million Life, for which the additional bought its the manufacturing slowdown but citing strong growth in 23%, acquired in two separately announced tranches of 9% consumer spending and home sales as the nation transitions and 14%. As part of the deal, RCAM’s name was changed to Reliance Nippon Life Asset Management. Nippon also owns a minority share of the insurance company owned by toKatsunobu “an economy Motohashi, driven theby consumers head of Mizuho’s and services.” asset RCAM parent Reliance Group management arm, said Matthews’ “long-term investment share purchase last October, RCAM paid nearly $38 million for philosophy complements our client needs as they increasingly Goldman Sachs’ onshore Indian. Prior asset to management Nippon Life’s business second act as distributor for Matthews products to Japan’s generally continued commitment to that market via its local investment shiftrisk-averse their wealth retail andfrom institutional savings to investment.” investors and Mizuho the two will (AUM:banking $1.1 and billion), securities with businesses. the New York firm stressing its Three divestitures by European banks in India included firms plan to jointly develop Asia-focused products. Mizuho, Royal Bank of Scotland’s sale of its private bank to local Japan’sglobal asset second-largest management financial platform. services Following firm, hasthe madeMatthews asset management; Deutsche Bank’s sale of its asset management managementdeal, Mizuho and a “key Dai-ichi focus area,”Life Insurance including theannounced expansion that of its unit to Mumbai-based Pramerica Asset Managers, a joint they are combining their respective asset management DHFL and businesses (see Money Management). Prudential Financial; and KBC Asset Management’s sale ventureof a 49% between stake in IndianUnion housingKBC Asset finance Management company to Union Bank of India. The sales underline the general restructuring million ($55 million) for Perennial Fixed Interest Partners European banks are undertaking, as well as the challenges Hendersonand Perennial Group Growth cut three Management deals in Australia, owned payingby Melbourne- A$72 based wealth manager IOOF Holdings market characterized by restrictive and costly regulations. pay a deferred performance fee after two and four years. In non-IndianSeparately, thefinancial Indian services government firms lastface year making abandoned money ina plana . Henderson will also to apply the nation’s minimum alternate tax to non-Indian to 100% in 90 West Asset Management, which has seen investors, including demands for back taxes. Aberdeen Asset theits global third deal,natural Henderson resources increased equities fundsits ownership and segregated from 41% Management and other foreign asset managers responded mandates business more than triple to A$300 million in with a court challenge, with the government retreating on advice of a special panel.

18assets since Henderson’s initial investment in 2013 (the same two major Manhattan apartment complexes. Among the Real Estate 93 largest real estate investment managers in Pension & Investments latest annual survey, which includes real estate investment trusts, growth in worldwide assets rose to pre- In a world mired in low interest rates, the crisis levels of 20% in the 12 months through June 2015, commercial real estate market remained a prime with assets reaching $1.2 trillion. beneficiary for another year, as those rates help to fuel development as well as investment from At one of the larger real estate advisors, TIAA-CREF, Phil yield-starved institutions. Indeed, the introduction McAndrews, senior managing director and chief investment Pensions & Investments last of quantitative easing early last year by the European Central Bank gave commercial real officer for global real estate, told estate investors on the Continent a new reason to OctoberDemand that remains he has strong, a “really McAndrews positive outlook” said, primarily on real estate be cheerful. “Quantitative easing will only increase due to rising rents and supply that “remains under control.” the amount of money coming in,” Cornerstone Real Estate Advisers CEO Scott Brown told the because of the significant gap between the return offered Wall Street Journal last March at a conference of bytop-tier real estate areas andsuch that as New of U.S. York Treasuries. and San FranciscoHe did caution, are the real estate executives on the Riviera. however,preferred that choice with for the investment. market in a “mature part of the cycle,” of MassMutual Financial Group, a Forstrong U.S. greenback firms such makes as Cornerstone, investment part in European real estate particularly Real Estate Transactions compelling. In 2014, Cornerstone expanded its European presence by 2011 2012 2013 2014 2015 acquiring a German real estate advisory Number of Transactions 11 10 13 13 15 last year announced plans to extend its Combined Value ($M) $2,058 $230 $875 $1,458 $1,526 firm, Pamera Asset Management, and Total Seller AUM ($B) $117.4 $38.9 $77.9 $93 $90 and Spain. Coming off a robust 2014 footprintin European with commercial offices in France, real estate, Italy Average Deal Size ($M) $187 $23 $67 $112 $102 Average Seller AUM ($B) $10.7 $3.9 $6.0 $7.0 $6.0 half of 2015 rose 37% to €135 billion transactions($150 billion), in according the region to in Real the firstCapital Source: Berkshire Capital Securities LLC Analytics (RCA). In the U.S., deal value jumped 36% to $225 billion. Prices are also rebounding smartly: The Moody’s and RCA U.S. Commercial Property Price Indices last TIAA-CREF was among the players last year making October were 14.5% above the November 2007 peak on a acquisitions in the real estate advisory sector, which also hosted one of the largest such transactions in recent years: index fell 40% between November 2007 and January 2010. Sun Life Financial’s C$560 million ($455 million) purchase nominal basis and 1.5% on an inflation-adjusted basis. The of Bentall Kennedy Group. The deal between the two The demand for commercial real estate investments was Blackstone Group’s successful close last third-party asset management and is in addition to two October of the largest-ever private real estate fund, at $15.8 Torontoother asset firms managers is in keeping the insurer with Sun acquired Life’s expansionlast year (see into reflectedbillion. Indeed, in opportunistic funds such as Blackstone Real Cross Border). Bentall Kennedy adds C$28 billion in real Estate Partners VIII dominated closings in the 2015 third estate AUM to the C$20 billion in commercial mortgage and quarter, accounting for three-quarters of the $38 billion in closed-end private funds raised globally, according to realof 550 estate institutional assets managed clients and by Sun investors. Life, with The the all-cash combined deal, funds raised $48 billion globally, or 38% more than in assets primarily in North America. The firms serve a total researcher2014 as a whole. Preqin. “With For the more first mega three funds quarters, currently opportunistic being includes buying out the shareholdings of British Columbia whichInvestment Sun Life Management said will be accretive Corp. and to the earnings California in 2016, Public for opportunistic funds still high, fundraising is likely to Employees’ Retirement System, both of which will remain marketed,” Preqin wrote, “and institutional investor appetite Bentall Kennedy since 2004. In the 2015 third quarter, Blackstone reported a nearly 9% remain strong in the coming quarters.” as clients. Sun Life Financial has been a significant client for appreciation in its $13 billion in opportunistic real estate Referencing the establishment in 2014 of Sun Life funds year-to-date and a 16% year-over-year increase Investment Management in real estate AUM to $93 billion, including $27 billion in Stephen Peacher told Canada’s Business News Network that the transaction goal “was to, Chieftake some Investment of the alternativeOfficer an active buyer of properties last year through its various yield strategies like real estate and commercial mortgages “dryfunds, powder” including (total the AUM:$1.3 billion $334 billion).acquisition Blackstone of Willis was Tower in Chicago, $15 billion in real estate assets acquired from Bentall Kennedy ... [is] a natural extension of that real GE Capital Real Estate, and the $5.3 billion acquisition of that we’ve used at Sun Life and bring them to investors. INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 19 estate expertise that we want to bring to investors.” During the same June 2015 interview, Bentall Kennedy CEO Gary throughout Europe. Citing opportunities in both the U.K. and on Continental Europe, Campbell said the deal will “enable 14% and would top 10% in 2015 “on a very large, very Whitelaw said trailing 12-month returns for his firm were branded funds is Pradera Open-Ended Retail, launched in that’s looking for predictable income, it’s a great asset class usGermany to grow in at 2009 a greater and named pace.” Amongthe best-performing the four Pradera fund in diversified portfolio with predictable income. So in a world a type of institutional fund in Germany). The fund comprises [and]TIAA-CREF North was America involved is a safein two haven transactions and an area last of year growth.” 2014seven on retail the properties German Spezialfonds in Germany, Index Poland (“Spezialfonds” and the U.K., with are Henderson Global Investors’ interest in with European asset managers. In the first, the New York “furtherSavills Investment acquisitions Management in the pipeline.” firm bought out known as Cordea Savills) agreed to pay up to €21.5 million ashareholding joint venture in the TIAA two Henderson firms established Real Estate in 2013., which TIAA- was for Frankfurt’s SEB Asset Management of London, part (formerlyof Swedish CREF paid £80 million ($123 million) for Henderson’s 40% bank SEB. The combined business will have €15 billion in AUM in a variety of European-focused fund structures and createdEuropean when and TIAA-CREFAsian real estate acquired businesses. Henderson’s The unit U.S. hasreal $26 estatebillion advisoryin AUM in business core and and value-add Henderson commercial contributed real itsestate. 60% of the €10 billion in acquired SEBAM assets are in TIAA-CREF noted that since setting up the joint venture anotherGerman €2opened-ended billion in an fundsAsian thatplatform. are in However, the process about of it has gained $1.3 billion in new mandates and secured liquidation. SIM said the deal adds “to our critical mass and $3.6 billion in capital recommitments from closed-end enhance(s) our ability to offer investment opportunities to clients.... and strengthen(s) our position as one of the leading investment management propositions in Europe fund investors. TH Real Estate will continue to subadvise Henderson’s U.K. property fund. Savills. In a second deal, SIM concluded a joint venture andwith Asia.” privately SIM heldis part China of publicly Minsheng traded Investment real estate Capitalservices to Savills Investment firmdevelop and market a series of global real estate funds and Management of London CMISIM European Investment fund, with Shanghai-based investmentChina Minsheng vehicles. providing The two up firms to €30 quickly million established in seed capital the agreed to pay up to 21.5 as the cornerstone investor. The fund’s goal is to deliver a € net return of 15%. million for Frankfurt’s SEB Cromwell Asset Management, part of Property Group paid €145 million ($165 million) for Inpan-European a second transpacific property deal,funds Australia’s manager Valad Europe, Swedish bank SEB which has some €5 billion in AUM. The addition more than doubles Cromwell’s total funds under management to nearly A$12 billion ($9.5 billion); complements the

strategic goal of increasing the proportion of total revenues In the second deal, TIAA-CREF formed a joint venture Brisbanegenerated firm’s by global Asia-Pacific funds management. focus; and is Cromwellin keeping cut with the its with Swedish National Pension Funds AP1 and AP2 to deal with Blackstone Group through the Blackstone Real Estate Partners VI fund and with Valad senior management. The initial platform, operating under the Cityhold Office Valad Europe had been part of the Valad Property Group “createPartnership a leading name, pan-European will consist ofoffice properties investment from platform.” TIAA- in Australia until Valad Property was acquired in 2011 by CREF’s general account and AP1 and AP2 valued at €2.2 Blackstone, which then split the two businesses.

The two partners plan to make an additional €2 billion Within the U.S., there was a small deal of note involving billioninvestment ($2.5 over billion); the nextit will three be managed years, targeting by TH Real core Estate. and fast-growing Allegiancy acquired TriStone Realty twoManagement commercial, doubling real estate its AUMadvisory to $1 firms, billion. as ambitiousThe deal investmentsfunds in Sweden’s in leading pension cities system, such as which Frankfurt, has more London than and follows Allegiancy’s $5 million capital raise in 2014, Paris.$140 billionAP1 and in AP2assets. are TIAA-CREF among five said separate the deal investment allows which CEO Steve Sadler told Richmond (Va.) BizSense was portfolio across asset, tenant and market exposures while itestablishing to “further adiversify broader [our] platform existing to expand European our officeEuropean designedopportunity to assist to execute his firm on ourin acquiring strategy, “qualityexpand ouroperators asset and bring[ing] them in as affiliates. It [TriStone] was an since 2011 in various real estate strategies, including Allegiancy made plans for a further $50 million capital raise. investments.”timberland and TIAA-CREF farmland. has been co-investing with AP2 baseAfter anddoubling grow theour sizegeographic of its business presence.” in 2014, Last September,Allegiancy There were several other transactions in the European company’s growth to 400% in just over a year. TriStone, market, among them the buyout by Colin Campbell of the saidfounded the addition in 1997, ofmanages Houston-based a portfolio TriStone of some brings 3 million the Pradera he did not own. The retail square feet of commercial space in nine states. Based in property specialist has €2.4 billion ($2.9 billion) in AUM 60%in funds, of London-based joint ventures and separate account mandates itself as combining proprietary technology with an “intense 20 Virginia, Allegiancy specializes in office properties and bills hedged. It is simply a ‘bet’ fund, placing big and frequently focus on cash flow and profitability” to bring “fresh vigor tobillion an often in real poorly estate understood AUM. business.” Allegiancy has set ill-judgedFortunately wagers.” for hedge funds, the prestigious British an aggressive five-year goal of managing $10 billion to $15 newsweekly and newspaper are not making allocation decisions, as in the face of questionable performance Hedge Funds/Private Equity institutions largely appear as committed as ever to the investment vehicles, albeit with some pushback against

Watson/Financial Times Global Alternatives Survey For more than a decade, institutions have thenoted rich that “2 institutionaland 20” fee structure. investors The“continue latest Towersto use hedge delivered a big shot in the arm for the alternatives industry, ramping up their allocation to such investments as both an alpha generator and a funds to access skill and build diversity into portfolios,” diversifying agent complementing their traditional particularly as “beta valuations are coming under pressure” equity and fixed income holdings. That belief and “manager skill” and portfolios with “differentiated system began to falter after the financial crisis, strategies”assets in hedge appear funds as “theand bestfund way of funds to protect among value the topinto when hedge funds in particular suffered significant the100 next alternative phase of asset the cycle.”managers Between held steady 2013 and at 28% 2014, of their negative returns. In the go-go equity years since, hedge funds as a whole have lagged, a record that many industry players and analysts have ascribed total alternative assets of $3.4 trillion. In the first half of to limited volatility and the stubbornly high 2015, the industry recorded net inflows of $40 billion, with firmsalternatives managing assets more as whole than $5 could billion grow accounting from $7.9 for trillion nearly in correlation among assets. three-quarters, according to HFR. Consultant PwC figures But when volatility began to pick up in 2015 and hedge funds had their opportunity to shine, theory and Hedge Fund/Hedge Fund of Funds Transactions expectations lost out to the vagaries of 2011 2012 2013 2014 2015 the industry as a whole recorded a investing.negative 1.3% In the return, first three according quarters, to Number of Transactions 14 23 19 7 10 Combined Value ($M) $873 $892 $755 $76 $986 bad results during the shaky months Total Seller AUM ($B) $42.9 $60.5 $71.1 $7.0 $98.2 researcherof August and HFR, September. with particularly In August, some of the industry’s most storied Average Deal Size ($M) $62 $39 $40 $11 $99 investors joined lesser lights bathed Average Seller AUM ($B) $3.1 $2.6 $3.7 $1.0 $9.8 in red. David Einhorn’s $11 billion long-short value-oriented Greenlight Source: Berkshire Capital Securities LLC Capital fund was reportedly off 5% in August and 14% for the year through that month. William Ackman’s Pershing Square Capital Management 2013 to between $13.6 trillion and $15.3 trillion by 2020, August. John Paulson, who rose to fame and vast wealth with hedge funds and fund of funds climbing from $2.9 at Paulson & Co. saw in its 2007 flagship on big activist bets against fund decline the housing 9% in trillion to between $4.6 trillion and $5 trillion. market, saw three of his funds go sharply negative in August, One of the largest managers of hedge funds for pension with two delivering year-to-date negative returns. Fortress funds, Man Group — listed as No. 3 in the Towers survey in Investment Group shut down the macro fund run by Michael Novogratz, a principal and director, following an continued to add to its portfolio with one deal, bringing to that category — saw its AUM climb 8% in the first half as it Another alternatives giant, Carlyle Group, was weighing the last two years (including one in 2014 for contracts). Man 18%the closure loss through of its majority-owned September and Clarensignificant Road redemptions. credit hedge five the number of hedge fund acquisitionsAberdeen it has made Asset in fund, as AUM dropped by more than half from the $8.5 Management, which acquired both a hedge fund and private billion managed in 2014. was joined by a neighboringNeuberger London Berman firm, continued to add Surveying that landscape, the Economist opined last August: to its hedge fund holdings through its Dyal Capital Partners “The industry used to promote itself as being able to make equityunit. The firm two in minoritythe U.S. stakes it acquired bring to 14 the number of hedge funds in which Dyal has shareholdings. In addition, at year-end Dyal reportedly acquired a minority profitslosses. Inwhether recent theyears underlying the average markets return were of hedge rising funds or is falling.remarkably In fact, similar in the to financial what a portfoliocrash of 2008 of bonds it suffered and equities big EnCap Investments. Blackstone Group, Brevan Howard would yield — with the disadvantage that higher fees are stakeAsset in Management a Houston-based and KKRprivate & Co.equity were energy three specialist, other major Financial Times editor and columnist alternatives players that took minority stakes in hedge funds, Matthew Vincent: “No fund that gains 20 percent in seven while Affiliated Managers Group made investments in deducted.”months and Added loses 7 percent in one can be meaningfully INVESTMENT MANAGEMENT INDUSTRY REVIEW | 2016 three firms that offer hedge funds in whole or part. 21 Man Group’s deal involved a long-short and long-only small- to mid-cap private equity, and real assets in the U.S., investor with $1.2 billion in AUM, NewSmith. The 13-year- Sumitomo Mitsui Trust Bank, has asAberdeen, well as private which hadequity about in Asia-Pacific. $9 billion in private equity assets oldacquisitions firm, 40% was owned for quantitative by equity manager Numeric offices in London and Tokyo. In 2014, the largest of Man’s private equity teams in the U.S. and Asia will help broaden various acquisitions, combined with positive investment inAberdeen’s Europe prior private to the markets deal, said solutions FLAG’s activity “well-established within the Holdings of Boston. In the company’s 2015 first half, the Aberdeen’s presence in the U.S., which alternatives arena.” FLAG also extends Subsequently, Aberdeen closed a $295 Private Equity Fund Transactions Aberdeen called “a key growth market.” which was $70 million above target. The 2011 2012 2013 2014 2015 millionfund will FLAG invest Private in lower-middle-market Equity VI fund, Number of Transactions 5 9 9 7 6 private equity funds in the U.S. Following Combined Value ($M) $464 $575 $834 $354 $910 had around $30 billion in its alternatives Total Seller AUM ($B) $65.8 $31.6 $55.4 $38.7 $35.8 bothplatform, the AAM or 6% and of FLAGits total deals, assets Aberdeen of $520 billion (£330 billion). “Alternatives are Average Deal Size ($M) $93 $64 $93 $51 $152 becoming core elements of a quality Average Seller AUM ($B) $13.2 $3.5 $6.2 $5.5 $6.0

Source: Berkshire Capital Securities LLC portfolio,Aberdeen’s and global we need head to of fill alternatives, in our gaps intold that Pensions universe,” & Investments Andrew McCaffery,. In a third deal, Aberdeen paid £29 million for the performance, helped boost Man’s AUM to $79 billion. With SVG Capital the acquisition of NewSmith, Man adds a Tokyo-based in their joint venture, Aberdeen SVG Private Equity hedge fund equity team to its portfolio. NewSmith, which 49.9%Managers interest. Aberdeen of London made private two other equity bolt-on firm acquisitions in in 2014 lost two of its founding partners to retirement, also 2015 (see Money Management and Wealth). invests in U.K., European and global equities. Separately, Sumitomo said it will begin to offer Man products to its by making minority investments in three geographically clients. Affiliated Managers Group enhanced its alternatives lineup Aberdeen Asset Management’s two U.S. deals are part part and managing a total of nearly $20 billion in AUM. of a bid to expand its alternatives business, strengthen diverseAll three firms were providing announced hedge the samefund strategiesday in November. in whole or institutional relationships, and build out its U.S. presence. On the fund of hedge funds side, Aberdeen acquired based Systematica Investments (AUM: $8.8 billion), led Arden Asset Management The major deal involved a quantitative firm, Geneva- than $11 billion in assets, about half under advisement the stake owned by Guernsey-based BlueCrest Capital for the Massachusetts teachers, a New and Yorkstate firmemployees with more byManagement high-profile, whichtrader spunLeda outBraga. Braga’s AMG group bought in most 2014. of AMG pension fund, which invests directly in hedge funds. For touted Systematic’s status as a “leading managed futures Massachusetts PRIM, Arden effectively acts as a consultant, providing manager sourcing, due diligence, risk analysis andsecond-largest systematic dealtrading” by assets firm, sayinginvolved it willAbax add Investments a “highly runs 18 customized portfolios for institutions worldwide as differentiated(AUM: $5.4 billion) array of of South new strategies” Africa. Abax to specializesits platform. in The andwell portfolioas three dailyconstruction. liquidity Overall,products the and 23-year-old four commingled firm domestic investments, offering a mix of traditional equity programs. The liquidity products include the $1 billion Arden Alternative Strategies multi-manager fund available on Fidelity Investments’ platform, with the aim of and fixed income funds and hedge funds. AMG referred to that niche in calling the firm “well-positioned to benefit Ivory Investment Management income markets. from the region’s outstanding growth prospects.” achieving “relatively low beta” to the major equity and fixed In touting the value-added it provides clients, Arden Thelong-short final deal and was long-only for strategies. AMG praised Ivory’s InvestHedge last April that the (AUM:“demonstrated $3.6 billion), ability a Los to protect Angeles capital firm that in both pursues positive and

President Henry Davis told firmhave believesdifferent “alpha levels existsof information and can be [about captured managers], through so negative market environments” as well as its “disciplined skill-based management,” adding: “Hedge fund investors approach to generating alpha.” In AMG’s third-quarter earningswhile noting call, that Chairman “we can and further CEO Sean enhance Healey their described respective allocatinginvests with to somehedge 130 funds managers is an inefficient across its market portfolio. and Init all three firms as having “excellent prospects for growth” isthe possible second todeal, achieve Aberdeen an information acquired established advantage.” private Arden global platforms. AMG also made investments in two U.S. FLAG Capital Management, with $6.3 billion forward opportunity sets” (see Wealth)through. the company’s U.S. and wealthIn a year firms in which last year activist investors entered the media equity firm radar screen in the U.S., Neuberger Berman acquired a 20% of invested and committed capital. With offices in Boston, 22Connecticut and Hong Kong, FLAG invests in venture capital, stake in activist hedge fund Jana Partners. Neuberger cut increasing our investment in our funds, and deepening the deal through its alternatives subsidiary, Dyal Capital our relationship with a leader in the alternative asset Partners, with the capital to be invested in Jana funds. According to the Wall Street Journal, the deal valued Jana at $2 billion. A long-short investor that began life 15 years ago managementFunds Solutions sector.” business Blackstone, in the second an early quarter investor of 2015.with Magnetar, reported record AUM of $68 billion in its Hedge within AUM $17 and million a reputation in assets for and seeking the backing quiet resolutionsof high-profile with hedgecompanies fund itmanager targets, Leonas opposed Cooperman, to public Jana spats. has $11As founder billion InU.K. a thirdacquired minority a 25% deal stake involving in New a York’s high-profile Penso buyer,Advisors hedge. Barry Rosenstein told Barron’s in 2014: “I always say to the fundPenso, manager with $3.1 Brevan billion Howard in assets Asset under Management management of theand CEO, ‘You could take our ideas and make them your own andThe benumber the change of activist agent. funds The hasalternative grown sharply is you could in recent fight In another deal involving a us, but you’re going to end up in the same place anyway.’” pursuing similar agendas against the same companies, often large hedge fund, the family yearslarger to ones more that than can 70, pose according greater tochallenges HFR, with for many success. of them office of tech billionaire Eric In a second deal, Dyal acquired a 10% stake in Chenavari Investment Managers Schmidt acquired the 20% on Europe and Asia. Dyal, a said London Chenavari credit andis “very structured well- stake in D.E. Shaw held by finance investor with $5.4 billion in AUM and a focus to European banks’ deleveraging, around investment the Lehman Brothers estate positioned to benefit from the opportunity set related strategiesrelationships. in credit Chenavari and private Toro Capital debt markets” IA, a European while asset- Chenavaribacked-securities cited the fund benefits started of strengtheningin 2009, has capitalized institutional advice, provides risk assessment and hedging strategies for institutions via customized risk hedging overlays and markets to consistently rank among the top hedge fund onperformers. post-financial-crisis mispricing in the European credit in 1997 by Ari Bergmann, the former head of the Bankers negativeTrust derivatives correlated desk alpha and programs. risk merchant The firm bank was and founded an early There were multiple additional deals involving minority purchases of hedge funds, including two by leading innovator of derivative products. Brevan Howard was facing itsreturns own challengesin a 12-year as history, the 2015 while year also began, reportedly with its suffering flagship alternativesfund Marshall firms. Wace In ,the a cash-and-share larger of those dealtwo dealsthat reportedly by target macro Master Fund coming off the first year of negative size,valued KKR the & KKR Co. boughtshares alonea 24.9% at nearlyinterest $150 in London million hedge at the time of the announcement. KKR has the option to increase significantIn another outflows.deal involving a large hedge fund, the family its ownership to 39.9% over time. Founded in 1997, Marshall Wace has $22 billion in AUM, making it one of stake in D.E. Shaw Europe’s largest hedge funds, with investments primarily in officeSchmidt of techis executive billionaire chairman Eric Schmidt of Google acquired and a thelongtime 20% long-short equity strategies. KKR has $10 billion in hedge investor in Shaw’s quantitativeheld by the Lehman funds. According Brothers toestate. media fund assets, but Scott Nuttall, head of global capital and Hillspire, paid $500 million, asset management, told the Financial Times, “Building one- off direct hedge funds wasn’t going to fully meet out clients’ reports, the family office, whichdeliver will superior in turn risk-adjusted give it a piece returns of Shaw’s across profits. asset Schmidt classes hedge funds business in 2012 with the acquisition of fund praised the firm for successfully using technology “to needsof funds or provider fully leverage Prisma our Capital platform.” Partners. KKR establishedKKR also holds its alternatives space, Salient Partners acquired Forward globally.”Management In a bid, which to extend includes its offerings several such in the products growing among liquid the $6 billion in assets it manages. Forward, founded in minorityIn the second stakes hedge in two fund other deal specialist featuring firms. a major buyer, 1998 and based in San Francisco, also provides Salient Blackstone Group acquired a stake in Magnetar Capital, an with a strong retail base to complement its institutional orientation. Salient, which dropped the Forward name in billion in AUM. Blackstone made the deal though its $3 favor of its own branding, said the “combined platform event-driven, energy and fixed income investor with $13.6 will add scale, reach and depth to all areas of our business, shareholdings in hedge funds. Founded in 2005 by Alec billion Strategic Capital Holdings fund, whichCitadel buys, minorityIllinois- helpingbroad portfolio us support of alternatives institutional and investors has $21 and billion financial in assets. Litowitz, former global head of equities at advisorsBillionaire nationwide.” Gordon Getty, Houston-based majority owner Salient of Forward, manages had a based— as well Magnetar as the maderole it newsplayed for in its helping profitable to package hedges such against mortgage-backedsecurities. Magnetar’s securities assets during have doubled the financial since crisisthe crisis. jumped from $27 billion in assets in 2008 to $304 billion by been seeking a buyer for some time. Liquid alternatives for the products will reach $664 billion by 2020, with the Inwhich a statement include continuingto Bloomberg, to attract Litowitz and said retain the keyBlackstone talent, 2014, according to Morningstar, and PwC figures demand INVESTMENTdeal “will help MANAGEMENT us achieve INDUSTRY the firm’s REVIEW strategic | 2016 objectives, 23 investments in midstream public equities and upstream contribution plans becoming a target area. private equity, including the largest U.S. closed-end master retail market playing an increasingly large role and defined limited partnership. In announcing the cancellation, Ares said the two companies “had different views as to how best worldwide as of the third quarter of 2015 — $400 billion to proceed with the business combination in response to Asmore it sat than on at a recordyear-end $1.35 2012 trillion — the in private “dry powder” equity industry was facing a veritable embarrassment of riches. That pile theOtherwise, current privatemarket equity conditions deals in were the energymodest. sector.” Within the U.S., Denver-based ALPS agreed to pay as much as $65 Red Rocks Capital, Among transactions millionother private for another assets. Colorado The transaction firm, consists of $45 involving private equity anmillion investor in cash in publicly and up totraded $20 millionprivate inequity performance- firms and targets, the largest such announced deal was related payments. ALPS creates investment products andpackage customized listed private servicing equity solutions products for infinancial a 40 Act services structure, quickly terminated: Ares firms.manages Red $1.8 Rocks, billion which in assets stakes in a mutualclaim as funds, the first subadvised firm to relationships and separately managed accounts. These Management’s $2.55 billion which manages $500 million in AUM in some 30 to 50 purchase of Kayne Anderson include the ALPS/Red Rocks Listed Private Equity fund, Capital Advisors holdings diversified by stage of investment, geography, industry and capital structure. In a 2105 first-quarter conference call, ALPS described Red Rocks’ revenue as being “less than $10 million” with AUMDST Systemsgrowth over. the past three of money speaks to the industry’s success in fundraising, years around 20%. ALPS is part of information processing renewed institutional demand for the investment vehicles and servicing solutions firm Ardian acquire General Electric’s private equity investment group, A transatlantic deal saw French private equity firm followingquarters of a dip2015, after the the industry financial raised crisis, $385 but billion, also to accordingthe comment on the deal. GE has $1 billion in AUM in a variety limited number of attractive buyouts. In the first three accordingof industries, to Bloomberg, with investments although generally neither capped firm would at $15 million. In 2014, Ardian acquired a $1.3 billion portfolio toprivate Preqin, equity and anover EY the survey next oftwo capital years plans while by only chief 4% financial plan to of GE limited partnership private equity interests, in line officersdecrease showed investment that 46%(46% plan plan to no allocate change). more capital to with similar private equity portfolio purchases it has made Carlyle Group offers a window into the challenges private managed and advised, was formerly the private equity sinceunit of the AXA financial until a crisis.management Ardian, withbuyout $50 in billion 2013 ledin assets by second-quarter conference call, Co-CEO David Rubenstein CEO Dominique Senequier. The deal, if correct as reported, equitysaid fundraising firms are facingsince 2013 in deploying has been their the capital.strongest In inits Caryle’s 2015 would be in sync with GE’s divestiture of assets in its once- history, outside the “unique, if not anomalous 2007-2008 portfolio and direct lending business last year. formidable financial unit. GE also sold most of its real estate period.”recent annual But Co-CEO average Bill of Conway $10 billion. also “There told analysts are several that Carlylefactors In two private equity deals involving minority share had invested only $3.1 billion in the first half compared with a purchases, Hamilton Lane bought back the interest of “Most importantly, we think prices in many asset classes are Cascade Investment, which manages the wealth of Bill behind this year’s cautious investment pace,” Conway said. Gates, while Wafra Investment Advisory Group acquired a along with the competition from corporations for acquisitions. 10% stake in TowerBrook Capital Partners high.”At the Hesame also time, cited Conway global economic expressed and a belief political that uncertainty,“current with $34 billion in alternative AUM and another $198 conditions will serve as catalysts for the next round of buying billion in advisory assets, the deal positions employees. For Hamilton, as opportunities, and while we cannot predict when all these the dominant shareholders. “We are strong believers in opportunities will present themselves, the breadth of our the power of broader employee ownership — something platform and our dry powder positions us to take advantage Giannini. “We see this transaction as the logical next step all-too-rare in our industry,” said Hamilton Lane CEO Mario whenAmong the transactions time comes.” involving private equity targets, the 2003. According to the Wall Street Journal, TowerBrook cut largest such announced deal was quickly terminated: Ares inthe our deal firm’s with evolution.” Wafra to free Cascade up capital acquired for investments the shares in in Management’s $2.55 billion purchase of Kayne Anderson its own funds. TowerBrook was founded 11 years ago by Capital Advisors. The proposed transaction between the alumni of Soros Fund Management; it makes controlling investments in large and middle-market North American October, would have created a combined company with two$113 Los billion Angeles in AUM; firms, however, announced it fell in victim July and to volatile pulled in energy of Kuwait’s social security system, made the purchase throughand European one of firms. its private Wafra, equity an alternative funds. x investment arm

24markets. Kayne, the smaller of the two firms, has significant About Berkshire Capital Partners

Berkshire Capital is an independent, employee-owned investment bank specializing in M&A H. Bruce McEver R. Bruce Cameron Caleb W. Burchenal +1 212 207 1001 +1 212 207 1013 +1 303 893 2899 [email protected] [email protected] [email protected] in the financial services sector. With more completed transactions in this space than any other investment bank, we help clients find successful, long-lasting partnerships. Robert P. Glauerdt Ted J. Gooden Bomy M. Hagopian Founded in 1983, Berkshire Capital is headquartered in New York with partners located in San +44 20 7828 0024 +1 212 207 1043 +1 415 293 8426 Francisco, Philadelphia, Denver, London and Sydney. Our partners have been with the firm an [email protected] [email protected] [email protected] average of 13 years. We are recognized as a leading expert in the wealth management, money management, alternatives, real estate and broker/dealer industries. We believe our success as John H. Humphrey Brendan K. Kelly D. Scott Ketner a firm is determined by the success of our clients and the durability of the partnerships we help +44 20 7828 2211 +1 212 207 1040 +1 212 207 1042 them to structure. [email protected] [email protected] [email protected]

Ian Martin AM Richard D. Miles Drew R. Murphy +61 2 9221 2271 +1 212 207 1830 +1 212 207 1824 [email protected] [email protected] [email protected]

Nicholas J. Sheumack Mitchell S. Spector Jonathan Stern +1 212 207 8094 +1 212 207 1828 +1 212 207 1015 [email protected] [email protected] [email protected]

Advisory Directors

George W. Morriss Patrick von Stauffenberg +1 212 207 1000 +44 20 7828 2828 [email protected] [email protected]

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