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S S entures and ECURITIES ECURITIES UK LL C L TD 30 Buckingham Gate Cayzer House www.berkcap.com and regulated by FSA. Berkshire CapitalSecurities Ltdisauthorized +44 (0)20-7493-1552 London SW1E6 (484) 875-4107 Exton, PA 19341 15 EastUwchlan Avenue, Suite 404-406 (303) 893-2899 Denver, CO80202 999 18thStreet, Suite 3000 (212) 207-1000 New York, NY10022 535 Madison Avenue, 19thFloor NN BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC 1 age P A Financial . ? The deficits, combined with mid-1990s, and federal the deficit expanding ($400 largest of the country’s Two 2004). billion in trading partners, Japan and China, continued to underwrite the twin deficits by recycling their related trade- greenbacks into purchases of Treasuries assets, and though other the dollar’s value toward year-end had drop U.S. in the observers wondering if that policy had changed. Americans’ record-high levels of debt (as a proportion of income) MPTY 1 6 2 E 2005*

headline last August asked whether “America is now now is “America whether asked August last headline ALF Then there is the yawning U.S. current account gap, 2004* Times Times on the comfortable path to ruin.” The aging population is compounding an those fears, already-stretched as while ahead, decades federal the in retirees to government obligations enormous considers the their limited for own provisions citizens the review golden retirement the surrounding level decibel the 2004, In years. issue grew noticeably higher throughout the industrialized world—a discussion with enormous implications for asset managers. Whereas four entertained by books such as 36,000” “Dow that promised years ago the titles facing themselves find now they prosperity, ceaseless American public was like “Running on Empty” and the “Coming Generational Storm” that warn of the Security fiscal and crises ahead Medicare. for That Social among the public the became evident during issue the presidential has resonance run-up in oil caution. Beyond those prices factors, there was a gnawing sense provided additional that something wasn’t quite reasons right with the U.S. economy. for After an initial bounce, job creation was less robust than anticipated given GDP growth that ranged between 3.3% and 4.5% in the chastened by first the dot-com three collapse also quarters. worried that economy Many the was observers too reliant on the fumes housing market. over-heated generated by an which at 5.4% of GDP is more than triple the level of the and nearly negligible savings rate, helped to fuel additional fuel to helped rate, savings negligible nearly and concern that the country is living beyond its headed means toward and a possible day of reckoning. H

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lthough corporate earnings were of strong the year and for balance sheets piled much high with cash, TRONG Yale School of Yale Management Stock Market Conﬁdence Investors Investors elsewhere showed Institutional sentiment suffered a continual decline

For the ﬁrst half of the year, investors fretted over the

8 S (2002 & ’04) and annual % gain/loss Index level

FTSE 100 DAX 225 Nikkei S&P 500 Nasdaq DJIA cash on 2004 up to that point. possibility of U.S. interest rate hikes, Reserve with in June the initiating Federal the first increases. of The five ongoing quarter-point instability in Iraq and the huge playing things very conservatively, including the $7 billion $7 the including conservatively, very things playing Clipper Fund, which had 28% of its assets in short-term holdings at midyear. Another high-profile value investor, Warren Buffet the Indexes A books—nearly equivalent to stock holdings. firm’s the markets major with leanings, similar worldwide generally Merrill lackluster. ’s Lynch global fund manager survey found summertime respondents overweight in while cash, Emerging Portfolio astonishing” “an reported Research Fund 13 straight weeks of inflows into global bond funds in through the October 27. This included period $1.3 billion in October alone, the highest monthly total of investors displayed a great deal of skittishness. displayed a great deal of skittishness. investors December between 25% nearly by dropping year, the during by gauged as 100), of out 71 (to 2004 September and 2003 bubble, as the stock market resumed its struggles its for most of 2004 resumed the stock market bubble, as

Investment Management Industry Review 2005 Management Investment T BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC P private vehicles like IRAs. existing in savings retirement spur incentivesto additional Plan. Savings Thrift for press also will ObserversBush President that speculate employees’ federal the in those to similar funds index low-cost to choices investment limit will that proposal a on is betting early the and system, old The president wants to add private accounts to the 70-year- pledging to strengthen the system “for the next generation.” agenda, domestic his of top the at reform Security Social $1 billion-plusshortfall initsemployee retirementplan. a accumulating quietly for headlines made having Diego San with underfunded, are plans pension county and city f rts Idsr ls ya cle fr n nrae in increase an for called year last Industry British of takes considerable pressure off the state, the Confederation contributions. required of years the and collection of age the increased GDP on its state pension scheme, the government last year of 14% spends currently Italy,which In come. largerto changes of harbingers and progress as debate and minor reforms even consider observers Nevertheless, proposals. their in cautious been have date to ofﬁcials and politics, A Pension challenge. broader the consultant underline public as well as pensions, industry, airline troubled the in those “saving” theSocialSecuritysystem. for schemes particular own their touting by issue thorny this address to forced were candidates both as campaign, age 2 Number of Announced Deals Value ($billions) $1 Billion-plusDeals Finance &InsuranceSector Sources: Thomson Financial (Worldwide, U.S.);Dealogic (Finance &Insurance,$1b-plus) $1 Billion-plusDeals Finance &InsuranceSector U.S. Worldwide U.S. Worldwide Worldwide M&A Activity D n i ps-lcin drs, rsdn Bs placed Bush President address, post-election his In In the U.K., where a longstanding private pension system The crises facing some private pensions such as as such pensions private some facing crises The eom n uoe ean te Grin nt of Knot” “Gordian pension the state remains Security, Europe Social in with reform U.S. the in s EALMAKERS

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above growth 3%. expected with Europe, in spot bright a remained domestic demand and investment generally weak. its The U.K. and 2% below projected on growth GDP with disappoint, good to make to continued area Euro the year, future another for But obligations. the in growth economic strong needs U.S. the than more even Europe Continent, increasing theageofcollectionandcuttingbenefits. recommended also Schroder Gerhard Chancellor by year last convened panel a date), to participation limited (with Germany, where In a 2020. 401(k)-style plan by was introduced 70, in 2001 to requirement age pension nation’s that through August 2004, a little less than one-tenth the level the one-tenth than less little a 2004, August through billion euros ($45 billion) in mutual funds in the 12 months culture. equity Continent’s the in hole another punching stocks, of clear confidence in the near-term future, as they continued to steer needed forsolideconomicgrowth. innovation the stymie will Europe’s population that older increasingly worry also observers growth. many on term, damper Longer a put to conspiring all over- as discipline cited fiscal commission of lack a and The R&D in under-investment regulation, world.” knowledge-based the dynamic in economy and competitive “most the become to 2000 in set it goal ambitious the from remains Continent the far how acknowledges Commission Union much good news economically. In the U.S., GDP growth is was there challenges, longer-termregarding handwringing of 1999. In a major report issued in late October, the October, late in issued report major a In the throughout population flat-to-declining With niiul netr i Erp wrnt hwn much showing weren’t Europe in investors Individual md h lkwr promne f qiis n the and equities of performance lukewarm the Amid

2004

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834 375 grs uoen pt ny 35 only put Europeans ﬁgures Citigroup s rjce t so i 20. n South In 2005. in slow to projected is growthyear, though full the for expected long 4.3% of growth its economic with slumber, from awaking be to appeared ﬁnally Japan 9%. than more grow to set economy to China’s with Bank, World according the collectively, growth 7% excluding Japan are projected to generate the early 1970s. The East Asian economies to hit 5% in 2004—a level last achieved in election rally. post- strong a enjoying with market stock the investors, of spirits the bolster to appeared also Republicans the and Bush President of victory clear-cut The hiring. though jobs, much of that was due to hurricane-related 337,000 of gain robust a showed elections November’s after right released report employment October the expected to exceed 4% for the year, while olwd, D got i expected is growth GDP Worldwide, European BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC

, 4 7 - age 3 P Mellon +10. %Chg. vs. ‘0 Continental

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Laing & Cruickshank +20.3 %Chg. vs. ‘03 AGF Management Ltd Management AGF , and a handful of others aside, cross border activity activity border cross aside, others of handful a and UBS In total, there were 133 asset management deals last year last deals management asset 133 were there total, In For For the second year in a row, the wealth management Several Several firms were very active last year. in the asset management industry was limited last year. The year. last limited was industry management asset the in transatlantic pipeline was virtually shut and worth worth $10.7 billion in transaction value, compared 135 with valued at $9.3 billion in 2003. The 10 largest deals of 2004 accounted for $6.2 billion in value, compared with more than one acquisition. On the sell side, several insurers several side, sell the On acquisition. one than more the of indication an managers, asset of themselves divested problems some insurers have had making sense of those businesses. sector dominated the transactions, number accounting of management for asset remains a 48% management highly attractive Merrill of Lynch/Capgemini business, projecting that individuals with with deals. Wealth $1 million or more in financial 2008, through years assets five the in wealth their in jump trillion will enjoy a $12 to $41 trillion. With hundreds of viable firms worldwide catering to such customers—and new ones being minted all the time—the sector provides an endless array of deal possibilities. Europe was similarly idle. The U.K. playing took host center to several stage, wealth management transactions, including two by Group made its first overseas deal by taking a 60% stake $5.5 billion in 2003. $5.5 billion Financial enhanced its growing wealth management arm by picking up three U.S. firms, along with a hedge business. institutional its fund for funds of Group Federated Federated Investors inflows inflows in its global wealth management business in the including acquisitions, six made 2004, of months nine first the largest deal in the wealth sector London’s ($302 million), for CCELERATION EPS 16.74 +24.7 16.61 +15.2 17.44 +15.5 66.75 A

$15.87 +26.3%

Q Q Q ARNINGS kicked kicked off 200 1Q 2 3 4 2004* sensus, as of Nov. 22, 2004. sensus, as of Nov. Source: Thomson Financial *3Q, 4Q and full year 2004 are estimates; estimates & projections based on sell-side analyst con Earnings Per Share S&P 500 Earnings Per of the U.K. FleetBoston E -

, a a , Wachovia acquired Charter Cleveland’s owns owns —the —the

Chase’s , , a $58 billion deal that was followed Atlanta up followed a few of Lehman Abbey Abbey National Bank of America of Bank JPMorgan JPMorgan Chase Santander Central Hispano’s National Commerce Financial was also snifﬁng snifﬁng also was GLG Partners GLG JPMorgan Bank Bank One , SouthTrust a $14.3 billion deal that Royal Bank of Scotland (through its U.S. SunTrust Banks SunTrust Citizens Financial ) Group expanded its U.S. Lehman Brothers Lehman

he he asset management industry also signiﬁcant of a number to host played In May, Across the Atlantic, The IPO market, venture capital spending and M&A with running, year second the for rose also activity M&A

transactions, including including transactions, transaction transaction in late 2003, 2004 by acquiring tie-ups. regional signiﬁcant of number a by followed a a minority stake. The activity underlines the increasing interest in among hedge their among interest funds longtime budding the patrons, and individuals, wealthy institutions. Hedge funds now manage an assets. in billion $900 estimated

Investment Management Industry Review 2005 Management Investment T Alabama-based created the largest bank in the Southeast and the fourth- the U.S. as measured by assets. in largest One, while days later by acquiring of Memphis for $7 billion. In June, activity activity all picked up last year. raising In jumped 78% the in U.S., the VC third quarter compared billion, $11.3 fund- was period nine-month the for to and $5.5 billion, with $10.5 billion for all of 2003, according to Thomson of offering billion $1.7 the by Spurred Economics. Venture last spark some showed U.S. the in market IPO the Google, year after the rock-bottom performance of 2003, when the number of offerings dropped to the lowest level since the late 1970s. In 2004, 249 IPOs raised a total of $48 billion, year. of the previous triple the levels with both numbers the number and value of deals worldwide increasing 6.2% and In 41%, the respectively. U.S., the numbers increased 7.9% and 46%. The banking the of heels the On industry activity. was a hotbed of Asia, India continued to progress with growth above 6%. 6%. above with growth to progress India continued Asia, subsidiary, subsidiary, presence with a $10.5 billion bid for $15 billion acquisition of marked the largest-ever European banking deal. The transaction furthers the cross Spanish bank’s border global ambitions, retail allowing it to move up a few notches in the banking rankings and to balancing No. its 8 worldwide America. dependence on Latin London-based ﬁrm in which which in ﬁrm London-based around the hedge fund universe, reportedly reportedly universe, fund hedge the around of takeover a discussing $1.3 $1.3 billion acquisition of Highbridge hedge Capital Management fund second time in three years same that the At a industry. the led has deal hedge fund time, BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC settled its legal problems related to market timing allegations, outflows. large the scandals—such as as in scandals—such caught the were that companies fund major while funds, income fixed and equity for inflows net of two-thirds accounted for companies three these 2004, of months eight remained the action— flows dominated players three fund year, the throughout mutual strong Although industry. the regulations—impacting and fines subsequent market- scandals—and timing the of reflection a part in 1998, large since for year deals quietest its had otherwise which sector, fund in the mutual activity aaiiis including capabilities, institutional their enhanced acquisitions that for markets developed Asian to turned firms financial U.S. Dutch firm services of business management asset European and U.K. the acquired it as ($700 million), deal the border cross for largest accounted Provident, Financial P Group and Group Mason, London in Fidelity Investments Fidelity age TOTAL Trust Company Wealth Other Real EstateManager Insuranc MBO Securities Firm Mutual Fund Financial I Ba nstitutional W n h Srn da, ocue rgt fe te company the after right concluded deal, Strong the In The The eei Ast Managers Asset Genesis nk 4

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7 8 7 3 4 6 1 alth % G ? cash hoards and many are enjoying strong business results. another. Europe’s is banks markets are domestic also sitting in on opportunities large growth and limited growing The bulk. some add to banks European large the incentivesfor f mrcn ak ae lal sucs f concern of sources clearly are banks American of an remains strength and Europe size increasing however.The question, in open activity border cross additional National, inthethirdquarter. Abbey for bid its with industry banking European woke the up Hispano Central Santander before Summary, this Paribas HSBC saw its profits jump 53% in the first half while I also committedcapitaltotheinstitutionalsector. and Boston of Associates f infcn rgoa tascin floe, as followed, transactions regional significant of JPMorgan Chase made its offer for Bank One. A succession when purchase that on dry barely was ink the enough sure and 2004, in same the of more portended deal FleetBoston he eeuie rd odi, a wihd n n the on in weighed consolidation side, saying there is now a greater likelihood has Goodwin, Fred executive chief coming down atthelarge Europeanbanks. To rvt eut groups, equity private Two Advisers. International which in deal noteworthy U.K. a of including sector, the couple in buyouts management a were There buyers. the among e ugse ta te end-of-2003 the that suggested we last the n 2% One significant European voice, Royal Bank of Scotland hte te C-be da wl b te pr for spark the be will deal SCH-Abbey the Whether 21% 11 % ’ 11 13% rose 40%, for example. Credit provisions are also % 2004 acquired Partners Value Atlantic 27 2004 % 46% 20 netet aaeet nuty Review, Industry Management Investment % 48 % * of Seattle, of Partners Bay Orca Federated Investors included acquisitionsfund mutual made example. Other major firms that Fund Balanced the of Dreyfus with funds, well-regarded or effortsaddtospecific expertise of lines recentyears, involving targeted the concluded along followed deals additional in of handful The primarily funds. mutual assets billion), of basket($34 large a up Fargo Wells hs, eln ad SunTrust and Mellon, JPMorgan Chase, Inc., with 2004, BlackRock of 2003, deals the largest of quiet many for accounting relatively after a smartly back bounced h isiuinl sector institutional The ’ purchase of the assets oda Sachs Goldman hmsn Plumb Thompson ak f America- of Bank aae t pick to managed en one being . Delaware

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R. Bruce Cameron President As this debate continues, the asset asset the continues, debate this As For the near term, here are some of some are here term, near the For the trends we see impacting the asset management industry: but even here but even more can and should be done. has a industry significant management role to play in policy—an influencing opportunity and responsibility in turn requires the industry to have that a high of level trust and with credibility the public, the media, elected officials regulators. and . 6 8

119 133 720 10.7

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Finally, with the financial services industry accounting With With more than 7,000 funds, the hedge fund space is The mutual fund scandals and subsequent financial With the dollar growing weaker by the day, it seems, some some seems, it day, the by weaker growing dollar the With In general, there is overcapacity in all segments of the China, for years a looming presence in the world economy, world the in presence looming a years for China, Similarly, a few well-heeled U.S. mutual fund organi-

2003 2004

•

bolder European firms will European bolder the resume for search alliances U.S. the in expertise management investment and penalties and regulatory burden have mutual led fund some players weary to question whether they should alliances distribution international seek to begin will zations market attractive an as force—and major a as emerged has managers. money including businesses, of range broad a for financial with partner to institutions these of some for Look firms in Asia as one means of tapping this potentially rich industry, a set of circumstances that argues in favor of • • in Europe and Asia • market. • • continuing consolidation. • industry altogether. partner out this capability or quit the by by definition other or overcrowded. accident financial a by hastened This perhaps inevitable, makes rationalization enjoyed by the energy sector a quarter-century technology ago just a and few years ago—one can’t help but ask, “How much longer can this dominance last?” incident incident bringing undue attention and regulation industry. to the for a 9 9

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M Calamos Asset Management, known for quity

Cohen & Steers, which raised around $100 million Reform of current state-run systems so that they are NVESTMENT In the U.S., the fortunes of publicly traded asset Two Two prominent U.S. asset managers also announced On that front, the U.S. is far ahead of Continental Europe, Continental of ahead far is U.S. the front, that On For For several years we have focused in these annual RAB Capital represented the first public flotation of a

I Source: Berkshire Capital Securities LLC Source: Berkshire Capital Value of All Transactions ($b) Transactions All of Value Changing Hands AUM Management Buyout Management Total Minority Equity Minority Majority E Majority and commenced trading in September. In London, and the commenced IPO trading in September. the stock rose 17% in the first 10 months of 2004. the stock rose 17% in the first IPOs in 2004: its fast-growing Calamos Growth Fund; and firm real estate steam, presumably because it can no longer be ignored. several and imperative, one is term long the over sustainable governments have taken baby steps in that direction. But must be supported those policies, politically, tricky always action. by reforms designed to spur individual of that how of indication another was and manager fund hedge future consider managers asset As age. of coming is industry deals for hedge funds, RAB could help with valuations. population on the graying of the industrial world’s reviews make to individuals and governments both for need the and provisions for that future. In 2004, this issue picked up of such deals taking look over place, their shoulder particularly at Citigroup. At as the same even Europeans time, competitive pressures and financial strength and do market EU single not The mega-deals. additional guarantee foreign to sensitive highly remain Europeans aside, currency ownership of their major domestic banks, while differing regulations present another stumbling block. Cross border synergies are tougher to achieve as the interest well. remains Nevertheless, for both banks and governments. In September, executives from Investment Management Industry Review 2005 Management Investment and RBS were invited and to RBS brief were EU invited ministers finance on the in pursuing cross border mergers. face obstacles they managers were mixed. Firms such as were untainted by the mutual fund scandals experienced strong results and were of beneficiaries both the continued flow of new money into mutual funds and the transfer of net earnings for Price’s Rowe money out of T. other firms. the quarter ended September 30 rose 38% from the year- earlier period and BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC P attractive, with strong profit margins and growth prospects. technology, talent, for products and clients. For another, compete the sector remains highly to struggle to continue consolidation, ongoing for givenmanyfirms, small of number enormous the which of ripe is sector management remain strong in the years ahead. For one thing, the wealth the U.K.largest wealthmanagement dealoftheyear. of purchase million UBS’$302 with buyers, familiar the among were TrustWilmington institutions, leaving lotsofuntappedpotential. other with remain assets those of majority vast the figures p eainhp wt piae bankers, private with relationships up crisis of the late 1990s drove many wealthy people to strike with assets up 22% in 2003 worldwide, alone. wealth While the worth Asian net financial high of quarter a nearly for India. Boston Consulting and estimates that the Japan region accounts as diverse as markets in bankers foreign limit restrictions though potential, growth most the having as of theirgrowth tobe driven byacquisitions. one-third than more expect also firms These deals. toward disposed particularly firms larger and mid-size with years, three next the in acquisitions make to plan one-third that A F W h year. the throughout running deals of flow consistent a with breath, deals remained strong and players barely paused to catch a their handinexisting territoryoraddparticularexpertise. strengthen geography, new into footprint their extend to seeking buyers with strategic, and small were transactions of blockbuster acquisition a of lacked lines the sector along deal the as however, ($6.3 2003 billion), from decline did value Transaction billion). ($2.1 value of 20% and (64) deals of 48% for accounting age W Average Seller AUM ($b) Average DealSize ($m) T Combined Value ($b) Number of Source: Berkshire CapitalSecuritiesLLC KPMG surveyKPMG 2004 privateof worldwidebanks showed Private banks surveyed identified the Asia-Pacific region Most observers expect the deal-making environment to environment deal-making the expect observers Most Reflecting the robust demand in the sector, pricing on pricing sector, the in demand robust the Reflecting otal Seller AUM ($b) EALTH h htet etr f h ast aaeet industry, management asset the of sector hottest the was management wealth row, a in year second the or EALTH 6 ao Vance Eaton M M Transactions ANAGEMENT ht er Instead, year. that Berman Neuberger ANAGEMENT , $. billion $2.6 Brothers’ Lehman

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2004 2003 124 189 3.7 6. strength in tax and estate planning. Prior to the deals, deals, the to in billion $11 Prior nearly had Republic First planning. estate and tax in strength being made by private clients, as well as the impetus for impetus the as well as clients, private by made including being products, “best-of-breed” alternative investments, and underlining the increasing demands advice seeking are individuals more that shows also study The rate. to around $41 trillion by 2008, based on a 7% annual growth rise will assets these estimates study The assets.) financial the ultra-high-net-worth circle, with $30 million or more in fallpeople those of 70,000 into (Some trillion. $29 of total mouth-watering a reached group this by held assets report. The Lynch/Capgemini Merill a to according million, 7.7 estimated an to 7% than more grew million-plus $1 of division, which has $600 million in f aiona I te ags da, t acquired it deal, largest the In California. of three small deals to strengthen its operations in its backyard First Republic Bank also jumped into the fray, concluding Capital M transactions oralliances. ud Management Fund expertise: specific provide that advisors Francisco of BayIsle). (the mutual fund giant did keep the institutional division institutional the keep did giant fund mutual (the holding non-core a of divestiture the represents deal the Republic’s First into wrapped be will Isle Hawaii.Bay and California million in in million deWilde, executive vice president and chief operating operating chief Republic. First of and officer president August- vice Katherine executive said deWilde, services,” allocation asset and management wealth of range broader a clients will our and offer team Republic a First the is to complement Advisors terrific Wealth “Cypress business. management rnig o ee te ubr f elh aaes the managers wealth of Pittsburgh giant has number acquired since 2000 the seven U.S., to the bringing of regions separate three in transactions three 51 3 First Republic also took minority stakes in two San San two in stakes minority took also Republic First In 2003, the number of individuals worldwide with assets Eaton Vance was in the wealth market for the second the for market wealth the in was VanceEaton

already formidable scale in this market, as it made it as market, its this in build scale formidable to already determination its showed again ellon

’ 1.5 2.1 a Il Piae let se Management Asset Client Private Isle Bay s 33 94 64 Trainer Wortham & Co. subsidiary. For Janus, A UM ; and and ; Seattle. h tascin wih etd Eaton Vance netted $2.5 billion in which transaction, the to Prior division. management wealth of unit a Counsel, Investment Private Scudder of ofﬁce local the acquired it where Boston, of year running, this time on its home turf n 03 te opn acquired company of Associates the Portfolio Parametric 2003, Saltonstall. WestIn G. ofﬁce, Boston had hired the former head of Scudder’s , an alternative manager with $60 $60 with manager alternative an yrs Wat Advisors Wealth Cypress A UM and a client base in etce Bank’s Deutsche (see sidebar, p. 7) A A UM UM , the company in its wealth wealth its in Access Access , with with , Janus .

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Heartland Windermere Windermere Copper Beech Advisors Lydian Lydian Wealth Management of Phoenix. Phoenix. of Co. Trust Colonial Several Several smaller wealth managers and banks joined In line with its ambitions to create a national footprint Lamere says Mellon can take from several months to “We think one of the values we bring to these firms Lamere says the changeover from a local identity to a its extending in interest an shown has Mellon Although growing growing metro Washington, D.C., with business, wealth its in growth substantial enjoyed area.” BB&T has up 50% between 2000 and 2003 to $10.8 billion. to $10.8 and 2003 2000 between up 50% the buyers, highlighting the attractiveness of the growth- through-acquisitions strategy for firms of varying These sizes. included aggressive Financial, a Nasdaq-traded bank based Iowa, in Dubuque, of unit wealth the acquired Heartland owns retail banks in many smaller communities Arizona. Mesa, including market, in its five-state of Maryland, Oregon’s clients: which its for know-how additional made two acquisitions Investment Associates, which to specializes in gain alternative investments; and Philadelphia’s education. and governance family in niche a with more than a year engaging a firm targeted in conversation before it makes a bid. “One of believe in the is things that we both sides strongly really need to and become comfortable get Once with a each firm other.” is to know acquired, local management may stay in command or be circumstances. on depending employees, Mellon by joined firm’s acquired an replace does name Mellon the However, identity. previous is the brand of Mellon, which is well-recognized and we business,” management wealth the in well-respected think identity [local] the retain do we although “So Lamere. says during a transition period that the can end vary, goal is to Mellon brand.” create an overall Mellon with customers, by accepted widely is one national enjoying “excellent” post-acquisition “Clients are with these retention firms because of the relationship rates. and the trust they have “And if with the the principals through principals,” their due he diligence says. think the combination with Mellon is going to be good for their clients, their clients tend that to and believe then our joint sure it comes true.” responsibility is to make limited presence in the Midwest, Lamere says the entire country remains on the company’s “We’re interested in deal every area that radar has a screen. concentration of obvious that wealthy It’s we individuals. less have of a Coast, East the on do we than Midwest the in concentration so therefore it often is assumed that [the not the only focus.” Midwest] it’s focus. It certainly is a focus, but is a company’s presence in its New England backyard. : : UM UM The A A ( ( ationwide N eals D run by Mellon’s private ut UM C A , a 14- a , Kelleher & Garmo de o , part of insurer Safeco. Safeco Paragon Asset Management . Between 2000 and 2004, the companythe2004,Betweenand 2000 . T ontinues Safeco Trust C

uring the last three years, no more U.S. ﬁrm active has been buying up wealth managers than

ellon “We “We don’t target ﬁrm size,” says David Lamere, vice Following acquisitions of ﬁrms inAtlanta, Cleveland and customers in the District, Maryland Virginia. and Another Another venerable name in the asset management some in strength added Carolina North of Corp. BB&T M $600 million) of Las Vegas, a deal that to providesa new entryand growing area and a base for theexpansion in Southwest. Two months later, Mellon Providence bought Group Investment Advisory $750 million) Co. of Rhode Island, which strengthens the

MellonFinancial acquired seven wealth three managementlast year. Recent firms, acquisitions account including 10%for of around the $76 billion in D wealthmanagement group, withacquired firmsgenerally managing around $700 million in assets. chairman of Mellon and president of the private wealth management group. “Our criteria are much more around [a firm’s] people, the communities, the reputation,the and connections and business had been twice as philosophy. big that would have been So fine with us if and they at some point there is such a thingmake senseas for too either small side.” Geography to is also a key, as Mellon seeks to establish a national footprint. Currently, the wealth management group nationwide, hasincluding its headquarters in aroundBoston. 60 offices and Glendale, California, between 2001 and 2003,year last Mellon headed Seattle. for The activity began Las in April with Vegas, the acquisition Providence of Seattle’s and Trust enhanced Mellon’s covetedregion, adding $300 million inassets tothe existing$500 operation million in the that firm already managedMellon in acquired Seattle. In July, UM

year-old Washington, D.C.-based firm with $630 million in million $630 with firm D.C.-based Washington, year-old industry, industry, Wilmington Trust, reached an “affiliation” The Hills. with Beverly of Inc. Altman, & Barash Tani, Grant, deal provides Wilmington with comprehensive strengthens and clients its offer business can it services management its presence in the attractive Southern California market. “Our potential two and current benefit will companies’ that distinction competitive combined capabilities create clients of a both firms,” said Rodney Wood, executive vice Advisory Services. Wealth Trust Wilmington president, acquiring by markets nearby Keith Keith Karlawish, president of BB&T Asset Management, said the transaction “will immediately expand our ability to offer personalized investment management in the fast- A Investment Management Industry Review 2005 Management Investment BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC P added to its fledgling U.K. wealth business ( business wealth U.K. fledgling its to added Son & in its wealth business. Bermuda’s uiess of Jersey and businesses British the acquired Friedlander & Singer a key Europeanfinancialcenter.” strengthening its position as a wealth manager of choice in billion in assets.) UBS described the Amex deal as “further acquired UBS 2003, (In Merrill Lynch’s deal. German private client business, with $1.3 the to prior Germany in ocnrtn o te .. akt Sne & Friedlander had more than $5 billion in & Singer market. U.S. the on concentrating G as hs elh fcs n agr, otel and Montreal Calgary, in stakeToronto in 30% a holds and offices wealth has also AGF transactions. the via billion $3.2 to assets privateclient its AGF, primarily a mutual fund company, more than doubled A high-end wealth manager, Laing nearly doubled UBS’ doubled nearly Laing manager, wealth high-end Cruickshank. A & Laing involved which of larger the U.K. the in deals two included This account holders.) of the anonymity maintaining while to countries, appropriate the transferred revenue the with citizens, EU of accounts savings on tax a impose to EU the with private agreement “onshore” reached itself growing (Switzerland its presence. banking build to continued total) in it (six as Europe in though deals four year, cut last UBS giant abated Swiss 2003 in market European the Scott Goodman Harris, a high net worth financial advisor business.exitwealth bought to U.K.also decided theUBS 14 ilo) y curn 85-year-old acquiring by billion) $1.4 our presence in the U.K. and Guernsey and give us a strong enhance will Joseph Leopold of acquisition “The clients. its among Stevens Cat and Jagger Mick as celebrities pop Holdings of London, for $95 million. Leopold counts such A in billion $8 adds Sauerborn companies, family-owned and families 100 of Luxembourg. A low-profile firm with an exclusive clientele and formed in1998thatfocusesonlifeandpensionproducts. by A U.K. wealthmanagerwithsome$11billionin (Cypress Capital) and Ottawa ( P.J. Doherty & Associates ( for its wealth business in Canada, private client firms in the market. Laing had been owned been had Laing market. the in firms client private A UM UM age UM n te UK-ae das Biih elh manager wealth British deals, U.K.-based other In In addition, UBS acquired Germany’s The frenetic deal-making in Switzerland that dominated , whose new parent new whose Lyonnais, Credit in the U.K. to $18 billion, making it one of the largestthe of one it making billion, $18 to U.K. the in $. blin from billion) $1.4 : $4 ilo) ucae cmais n Vancouver in companies purchased billion) $24 : piae akn oeain in operations banking private Express’ American 8 (total Management Wealth Atlantic A UM o h $3 ilo US managed UBS billion $13 the to A wih a been has which Amvescap, UM UBS cutsixwealthmanagement deals prior to the deal, primarily

as theSwissﬁrmcontinuedtobuild Bank of N.T. Butterﬁeld last y AGF Management Ltd. Smith & Williamsona Smith , Sauerborn Trust its‘‘onshore” presence. epl Joseph Leopold ear Credit Agricole Credit , including A UM . A UM ). :

fourinEurope, underfunded, observers anticipate strong inflows into the into inflows strong anticipate observers underfunded, pensions corporate many with Indeed, attractive. remain sector the in margins and growth asset since out, cashing el ad aaeet uot. n oa, hr wr 36 were there transactions last year, total, valued at In $4.9 billion. buyouts. management and deals asset larger year’s border the cross several with along transactions, of management number a including 2004, in N.T. Butterfield. these markets,” said Alan Thompson, president and CEO of in privatearena the banking growthin further for platform T I capabilities in thisarea. a providing years, coming the strong incentive for institutional managers to enhance their in funds hedge U.S. in Greenwich Researcher Associates estimates pension funds will invest 1990s. $250 billion the the in longer were they no bet are sure plays equity traditional because part in late, of investment their upping been have institutions hedge but individuals, Traditionally,wealthy of preserve the details). been have funds for section Investments funds of funds in invest or directly funds arena, fund hedge manage either that firms up snapped all Companies hedge the in activity as M&A the of some driving factor a investments,alternative in interest greater private to equity players. banks to managers bunch, institutional diverse from ranging a were meanwhile, Buyers, companies. parent by divestituresinvolved of also buyouts number management A listing. public a gain to F&C allow would parent Dutch F&C, U.K.-based involving institutional business. In the year’s largest institutional deal as such insurers example, for U.S., the In companies. parent of part the on institutional sectorintheyearsahead. NSTITUTIONAL eaaey isiuin tesle cniud o show to continued themselves institutions Separately, Many of the sales last year were driven by restructurings Pogn Chase JPMorgan ue 20 t rcr a rae rne f activity of range broader a record to 2003 quiet relatively a from back bounced sector institutional he

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and Financial Mellon DVISORS r nt neetd in interested not performers are strong buyers: most for problem The performance. strong with investmentcombined styles speciﬁc seeking generally are who buyers alongside sellers of number limited a sector by characterized remained institutional the notwithstanding, activity ee xtn the exiting were MetLife (see Alternative (see The heightened Triarc BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC

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MetLife also divested itself of an asset manager, selling itself of an asset manager, MetLife also divested Although the divestitures by MetLife and Cigna are At the same time, Mellon Financial acquired the lion’s UM expands expands BlackRock’s retail mutual fund business, which will reach a combined $26 billion in managers in the world, with $366 billion in assets. From a product standpoint, State Street provides a mix of U.S. equity and real estate investment capabilities to BlackRock’s balance heavy reliance on its fixed income business (two-thirds of a cooperation agreement between BlackRock and MetLife minority stake in the since company its formation in 1991. State Street Research & Management to around client products and services. around client products and services. additional indicators of the difficulties some insurers have had making a go of the asset management business, O’Hanley, Ronald stake.) minority a owned also Capital (XL Prudential Financial Performance-based stock. and cash in million $375 for Inc. payments could add another 25% to the price over a five- year period. With the addition of SSRM’s $52 billion in A cap institutional firm that has been recording 25% annual growth in from the two deals as the company saw its overall assets top assets overall its saw company the as deals two the from the $100 billion mark, with half that total TimesSquare’s in sold Cigna institutional deal, AMG the after Soon assets. institutional bond investment business to in billion $6 adds acquisition The which has $15 billion in high-yield assets (total billion). Pareto adds $3 billion to that total, with products difficult “more in MacKay’s than better perform to tend that put it. as the company markets,” share of Pareto, consisting of its business, currency with management $35 billion in York York Life was on the other side of the negotiating table last year in acquiring the high-yield business of London-based asset management done through New York Life affiliate fixed income In 2003, Cigna sold its retirement plan business to DVISOR A Transactions ISIS ISIS Asset r AUM ($b) AUM otal Seller NSTITUTIONAL Number of ($b) Value Combined T Deal Size ($m) Average ($b) AUM Seller Average I Source: Berkshire Capital Securities LLC

. , (see Genesis : : $220 billion) in the U.K. and , a deal that deal a , Alliance Sun & Royal UM A Lincoln Financial . Group Founded Delaware Delaware , Investments for $172 million . . The combined company will be the fourth- acquired London-based London-based acquired Partners Value Atlantic Affiliated Managers Group The The U.K. was the center for a number of important As part of the $700 million deal, Dutch financial services financial Dutch deal, million $700 the of part As In another U.K. deal featuring a U.S. a featuring deal U.K. another In n a noteworthy management buyout in the U.K., newly formed institutional institutional transactions last year, for F&C, which Friends including Provident merged with its the 67%- deal owned retail fund manager, publicly listed Management largest asset manager ( a a top-10 manager of European pension assets, with F&C providing both an institutional the base numbers, forma pro 2003 on Based Europe. continental and a presence in enlarged group will derive 58% of its revenues from the U.K. and the rest from Continental Europe, primarily the where it Netherlands, will be manager of the active largest assets. pension stake 23% a receive will parent, former F&C’s Eureko, firm as Provident, Friends in shares and company enlarged the in name, F&C the adopt will group enlarged The cash. as well with Friends Provident assuming Said a Howard Carter, formerly head of ISIS and 51% new chief shareholding. of executive F&C: “This is a unique opportunity for us to achieve our stated objective of becoming a top five U.K. asset manager, extend our Europe, create a more franchise diversified business and provide into a platform Continental for meeting our clients’ needs in terms of product both and investment management In capability.” 2002, ISIS predecessor Friends Ivory & Sime acquired the asset of business management made the firm a top-10 U.K. asset manager. (Subsequently, (Subsequently, manager. asset U.K. top-10 a firm the made Within Within the U.S., AMG picked up the Cigna’s of business management equity TimesSquare Capital Management in 1990, DIAL has $19 billion in institutional assets and is one of the largest managers of international assets for U.S. institutions. Atlantic management will maintain the value investing style it pursued while running Delaware International and is also Delaware with expected role subadvisory to a retain Investments. player, Delaware Delaware International Advisers (DIAL) affiliates and from certain in cash and additional obligations of around $27 million. Philadelphia-based Delaware Investments management is wing of the asset a growth-oriented small- and mid- of Boston acquired London’s FIS rebranded itself as ISIS.) I Asset Managers, which specializes in emerging market investments Cross Border section for more details) more for section Border Cross Investment Management Industry Review 2005 Management Investment BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC P itiue mny akt ud from funds market money distributed fixed incomeboutique. separate a as name its under operate to continue will Seix Jersey-based New assets. foundation and endowment of U.S. institutional manager and one of the top five top-30 managers a bank Atlanta the makes arm, management asset deal, done through SunTrust’s Trusco Capital The Management capabilities. institutional its broadening by priority” invested in asset managers, including such firms as firms such including managers, asset in invested years for has TA 1968, in established firm equity private A portfolios. long/short neutral manager market and quantitative traditional the of in stake 50% a receiving turn Keystone Corp t picpl, akd h byu of buyout the backed principals, its Cellular Communicationsco-founderJohnMcCaw among the Seattle-based private equity group that includes to Eaton Vance manager,asset efficient tax- another in interest its sold Bay Orca 2003, In clients. wealthy and institutions for billion $3.6 manages that firm Advisors from neighboring of recapitalization million $240 a led Boston of Associates involving either private equity or management buyouts. add $103millionover five years. to with expected levels revenue upfront, on based payments million additional $25 paid Federated investments. income fixed and equity on focusing of strategy its with keeping in was sale the said instruments. Alliance these in U.S. the givesin deal The billion $155 of total a Federated managers fund market money largest the of one as status Management, in a deal that enhanced the Pittsburgh firm’s in has which unit, income fixed Management Asset Mellon Standish its complement that fixedin billion $3 acquired Paretoalso from assets income clients.”our innovativeof Mellon benefit the for strategies “Pareto’s leverage would intellectual company capital institutional and the global Mellon’s perspective to said of create additional business, president and chairman vice billion deal for deal $7 billion its with news made last year. the Pittsburgh firm concluded asset deals five management of one was Pareto of acquisition The prominent institutional fixed income shop with $17 billion $17 with shop fixedincome institutional prominent in acquired also half, first the bank Commerce age A Federated Investors acquired $29 billion in third-party There were several institutional deals of note in the U.S. which SunTrust, UM A 10 UM Fr uTut te rnato mes “strategic a meets transaction the SunTrust, For . f 20 billion. $200 of MBIA Inc. 1838 is a tax-efficient investment . . ( Investors Numeric National

and Clinton Group Parametric PortfolioParametric Associates , a Advisors, Investment Seix inrecent years ofmandatorypension schemes inHongKong and Taiwan. American firmswere activein Asia, which hasseentheintroduction . Orca Bay Partners A UM 88 Investment 1838 line Capital Alliance $ blin, in billion), $8 : McCaw AIM TA , , , institutional firm specializing in high-yield and distressed and high-yield in specializing firm institutional Border ubr f rnatos ak o 15 to sank the transactions as of year, number last deals fund mutual of dearth the degree during thefirsteightmonthsof2004). largeto due percentages, outflows billion $41 combined (a ht ee agt n h sadl sc a Pta, Janus their saw Putnam, AIM and as such scandals the in caught were that companies news.fund headline major became Meanwhile, scandals the before just 2003, in period same the during 48% around with compares Corp. This Research Financial to according year, the of months eight first the in U.S. the for 65% of net inflows for equity and fixed income funds in Federated Investors M securities and funds), Investments Fidelity (American Companies Group intact—Capital I Wells Fargo was joined by joined was FargoWells as impressive, was year last buyers U.S. of checklist the and Fargo Wells involving transaction marquee one to due 2003, of level transactions. The combined value of deals did rise above the eight diminished were there when 1998, since activity in wherethey placedtheirmoney. selective highly became alike individuals and institutions as firms, scandalized many by suffered damage the about story subtle more a Company hid numbers Investmentsunny the the But Institute. to according billion, $146 to 2003, in period same the over 19% jumping total in 2004, of months 10 first the of each in positive remained funds n igpr ad og og respectively Kong, Hong and Singapore in Principal Financial Group made institutional acquisitions Taiwan,as and Kong Hong in schemes pension mandatory of years recent in introduction the seen the U.S. mutual fund industry, money flows into equity into flows moneyindustry, fund mutual U.S. the reverberatein to continue that scandals the of face the n Three industry giants that emerged with their reputations mrcn rs ee lo cie n sa wih has which Asia, in active also were firms American h hnoe fo te cnas xlis o large a to explains scandals the from hangover The UTUAL . In the U.S., Principal acquired a majority interest majority a acquired Principal U.S., the In ). . ■ F UNDS A te ae time, same the At Financial. Strong A , UM Goldman Sachs and decline last year by double-digit by year last decline Vanguard Group Vanguard Affiliated Managers Group Managers Affiliated rwh qiis ( in equities growth specializing firm Connecticut a Investors, in Post Advisory Group , an a majority share in share majority a took Principal 2003, autonomy.In and investment operational and name its maintain Columbus will billion). $3 h lws lvl of level lowest —the oubs Circle Columbus and Mason Legg Massachusetts —accounted e Cross (see MW A UM : , BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC : 11 UM . In A 43 15 2.2 2.9 age UM 150 P A 2004

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Affiliated Managers Group concluded four asset Federated Investors, which in 2003 acquired eight small eight acquired 2003 in which Investors, Federated Another major fund group, management deals last year, including one of the largest in the mutual fund sector, with its purchase of $3 billion in mutual fund assets managed by November 2003, November Dreyfus also entered into a strategic deal role for Advisors. The company acquired the assets through Managers Funds, its which acts as an advisor group to of a subadvised diverse funds. “The Fremont funds excellent are strategic an fit with the Managers complementary products Funds, and geographic reach, as well adding as opening additional distribution channels to the Managers president vice executive Dalton, Nate said products,” Funds of AMG. Publicly traded AMG owns majority stakes in numerous mid-sized asset managers. mutual funds from The twice into last larger the year market for similar deals. one involved its purchase of four mutual funds ( with Dreyfus into funds market money and mutual Stearns Bear subadvisory a included 2004, in completed deal, The funds. $500 $500 million). A 55-year-old firm based in Philadelphia, value-oriented the managing continue will Bieler & Cooke statement a In agreement. subadvisory a under funds equity that sums up neatly the rationale among sellers partner Bieler & Cooke transactions, common increasingly in these Kermit Eck said, “This relationship Bieler’s expands distribution capabilities Cooke and & allows us management.” solely on investment to focus similar transaction with its purchase of the assets of Thompson Plumb Balanced Fund. the The fund, which was rebranded under the Dreyfus name, will by continue subadvised to be was announced concurrently with the split-up of Madison, owners whose Associates, & Plumb Thompson Wis.-based differed on distribution strategy for sported their more funds, than which $2 billion in $266 million) run by Mellon Financial, has close to $170 billion in RANSACTIONS T

Transactions UND F UTUAL r AUM ($b) AUM otal Seller Average Seller AUM ($b) AUM Seller Average Number of ($b) Value Combined T Deal Size ($m) Average M Source: Berkshire Capital Securities LLC Prudential PLC : , split 80/20 between : $6 billion) described UM A UM UM A A

. “The acquisition blends the strengths UM A

In recent years, Wells Fargo has been enhancing its asset its enhancing been has Fargo Wells years, recent In Deals that did get done in 2004 continued along the lines the along continued 2004 in done get did that Deals While the scandals may have stymied transactions in

n a Wells second, Fargo lower-proﬁle picked up deal, all three ’s ’s Barron article last year, for example, the president of Cooke Cooke & Bieler mutual funds (

how the regulations forced the firm to build an in-house legal legal in-house an build to firm the forced regulations the how department of four employees and spend several hundred I management operations with a steady flow management of operations with acquisitions, a steady flow as it seeks to increase the percentage of it earns overall from income such activities. But Strong represents a far more ambitious play, providing the California bank with an additional $34 billion in made a $1 billion-plus bid that Strong rejected. made a $1 billion-plus bid that Strong of recent years, with bigger firms seeking superior out funds (as opposed to companies) in a process that generally involves swapping distribution and management marketing asset muscle largest for The expertise. investing and assets industry deal of 2004 was a direct the acquire to result opportunity the of took Fargo the Wells scandals, as however, operations of Strong, which had been impacted negatively and by a improper $175 trading million charges settlement declined to Fargo Wells Although with the SEC and states. $500 around at it place reports price, acquisition an provide million, with performance agreements that could add as much as $200 million to that number—or around 1.5% to 2% of assets, depending on final price. By comparison, in the days halcyon of 1997, British insurer thousand dollars to produce a compliance manual. thousand dollars to a Ariel Capital Management ( 2004, many observers believe they will drive deal activity in the years ahead, as the increasing cost and complexity of new regulations—and the resulting squeeze on margins—cause profit small and mid-size firms to seek suitors with deeper pockets and administrative infrastructures. In . Canada, which has played host to to host played has which Canada, . Insurance Life Mutual a number of major deals in recent years, took a breather in 2004 from its consolidation trend. Europe was similarly pipeline. the transatlantic was quiet, as mutual funds and institutional accounts. When the Strong deal closes in early 2005, Wells Fargo will have around $220 billion in of Wells Fargo’s compliance investment and operations capabilities controls, distribution and with broad and fixed Strong’s income management, loads equity no- funds and multiple distribution channels,” said Mike head Niedermeyer, of Wells management Fargo’s business. investment Wells plans to wrap the Strong Fargo products into fund family. its own Investment Management Industry Review 2005 Management Investment BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC funds inleveraged loansandhigh-yieldbonds. in credit and special situations investing, with a portfolio of muscular euro provides a big currency edge for overseas for edge currency big a provides the euro muscular that all of top on down—and coming are provisions biain, ih total with obligations, loan collateralized and funds mutual rate floating includes of 2004 while 2004 of in million $465 held funds Oak Golden the total, In funds. of family Trust acquired six Golden Oak funds, merging them into its fund into one of its own. At the same time, Goldman Sachs of Michigan. mergedFederated deal, Banknorth the the in As Corp. Banking Citizens of part Management, Wealth ud a ml-a vle eil rn by run vehicle value small-cap a fund, Robert Esau,presidentofBanknorth Wealth. explainedavailable,” products services financial of range our clients with open architecture and to offer them the best provide to commitment Banknorth’s with fits assets fund our reorganize to decision “Our Maine. Portland, in based those advantages, only a handful of European financial firms P acquisitions. T C of business America management asset loan bank the Wealth is part of financial services firm $273 million on asset management acquisitions. Banknorth Federated name. Since 2001, Federated has spent a total of existing into the under rebranded was fourth the while funds, wrapped Federated were which of three funds, bond two and equity two included deal Banknorth The Group. 11-year-old Dallas firm with $9 billion in billion $9 with firm Dallas 11-year-old Value ($b) Value ($b) Numberof Value ($b) age Number of Number of Value ($b) Value ($b) Total Source: Berkshire CapitalSecuritiesLLC Int’l - U.S. - Int’l C ROSS In the second deal, Federated acquired the Golden Oak Golden the acquired Federated deal, second the In ROSS ee a wl b te et f ie fr European for times of credit bulging, are coffers best strong, are Earnings banks. the be well may hese 12 ’ Int’l B

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2004 2003 0.5 1.1 1.6 0 1. uies ih or custos n uoe icuig two including Europe, in acquisitions four with business ilo. ihn uoe te 1 blin custo by acquisition billion $15 Spain’s the Europe, Within billion. Dakota’s North acquire to Financial in 1988. Citizens acquired it since U.S. the in acquisitions dozen two than more made has RBS Group . Financial Citizens Cleveland’s presence into the Midwest via a $10.5 billion acquisition of The U.S. the in ever-acquisitive spree deal banking regional the the in joined was 2004 in firms action European of couple a border industry,where banking retail cross the Instead, 38 of deals peryearrecordedinthefive yearsthrough2003. average the below still was that 30, reach to 2003 from slightly rose worldwide transactions border cross of year.marketslast home their outside number the Although opportunities management investment for searching went f h UK ws h lretee Erpa cross-border European largest-ever the was U.K. the of urny datg. mrcn rs ae hnfl of small handful but interesting deals a in Asia last made year, but firms were largely American advantage. currency the despite again, waters U.S. in toes their dip to hesitant across the Atlantic a few years ago, Europeans also remain spree spending timed badly their of Mindful opportunities. of number limited the by hobbled be to continues Europe in activity border cross however, universe, management asset the Within industry. services financial activity Europe’s border in cross greater spur will deal this whether retail bankingdeal. n te U.S., the and Europe both from disclosure on pressure additional facing and EU the to offshore concessions Swiss tax making the industry banking With 2004. in activity border of center cross the markets—was financial European of open absent fromEurope. 16 12 28 .

5 1 Santander’s aggressive bid set observers to wondering to observers set bid aggressive Santander’s ihn uoe te ..te ot ohsiae and sophisticated most U.K.—the the Europe, Within

0.9 3.4 3 4.3 0 of Hispano Central Santander 15 30 15 . . 4 9 Charter One, done through its U.S. subsidiary, otne t etn is “onshore” its extend to continued UBS xets Ast Management Asset Expertise in pensionfundmanager that$3.1hadbillion by Sarasin ( Nedcor Ltd. Management. The deal, with Chiswell owner of the enlarged equity in Sarasin Investment Chiswell management retained a 25% stake Associates London’s acquiring England, on Cie & Sarasin Bank the wealthbusiness ofJulius Baer details). In the U.S., the company acquired Scott Goodman Harris in the U.K., of xedd its extended Scotland of Bank Royal A BNP Paribas also entered the heartland nte vnrbe ws piae bank, private Swiss venerable Another Rabobank UM . In 2003, Bank Sarasin, partly owned A UM o aon $0 million. $40 around for : $42 billion) with a charity and of South Africa, provides Bank o $1.2 for Bankshares First of theofNetherlands, acquired Laing & Cruickshank and as st t sights its set also ,

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Securities LL In the third U.S. transaction in the region, Principal Principal Financial Group continued to build its Another insurance company and asset manager, Capital ORDER e acquired billion. presence in Hong purchasing by Fund Provident Mandatory Kong’s fast-growing, four-year-old , Management which manages $300 for both million institutional and in retail clients. assets Principal, already which had 330,000 clients in the MPF scheme, another 70,000 through Dao Heng. (In 2003, Principal had gained mutual fund entered into its second in joint India’s venture industry, while billion.) 70% that year to $7.5 MassMutual Financial , Group expanded its investment management operations in Asia with the majority stake purchase sixth-largest in mutual Taiwan’s fund firm, of a held privately by Fuh Hwa have more than doubled since 2000, to $4.1 billion. Late last year, the government kicked off its “big bang” of the island’s fund industry, a far-reaching reform measure that Taiwan follows expects Associates the Cerulli scheme. pension national introduction of a mandatory to become the second-largest mutual fund market in with the region, fund fund Asia assets outside in Japan will 14% average annual $700 nearly reach to 2008, through years five the in growth a deal that added $1 billion in assets, primarily income accounts, in to fixed its existing business in the republic. Kong, meanwhile, MassMutual introduced mutual funds in funds mutual introduced MassMutual meanwhile, Kong, conjunction with its affiliate, Fund B Fund 2004 2003

r r Berkshir OSS ce:

otal otal R Wealth Managemen Institutional Mutual Othe T T Wealth Management Institutional Mutual Othe Sour C , as ISIS UM A Friends Goldman Sachs Goldman Societe Generale Delaware Delaware (see p. 9 for more : $7.3 billion), with billion), $7.3 : UM A Delaware Delaware Investments of . F&C and merged that ﬁrm with its purchased Group Managers Afﬁliated ’s goal of a gaining public listing ’s Eureko (see p. 9) .

U.S. ﬁrms were particularly active in Asia last In a complex, British-based asset management Among U.S. ﬁrms, there were two deals of note in

n a second deal, second a n a 60% stake in London-based institutional manager Investment Management Industry Review 2005 Management Investment ( Managers Asset Genesis year, year, with three major asset managers concluding strong deals. With economic growth, high savings rates and an aging population in many countries, Asia is looming ever larger in the plans of many of years recent in introduction The managers. asset mandatory national pension schemes adds to the appeal. region’s Cerulli Associates figures mutual well as a top-10 manager of European pension As assets. part of the $700 million deal, Dutch financial services firm , Eureko which owned F&C, will receive a minority stake in the enlarged company and shares in Friends Provident. The deal achieves for F&C, which it acquired in 2000 as part of an effort to build a pan-European asset manager

Philadelphia I details) transaction with a cross-border component, insurer insurer component, cross-border a with transaction French institutional firm. institutional French Europe. In the alternative investments area, investments alternative the In Europe. acquired two private equity funds from for $270 million. The two SG Capital Europe funds invest in mid-size European companies. SG Capital management will continue to run the funds Goldman as acting as general limited partner, partner. new with a in In million $220 invest jointly addition, to agreed Goldman and SocGen Europe Capital SG the believe “We Capital. SG by run fund team is uniquely positioned to find attractive investments in European middle market companies,” Goldman said in a statement. Goldman manages more than $11 billion in equity. private management retaining the rest, in line with AMG’s AMG’s with line in rest, the retaining management stake. minority a with managers leaving of practice Genesis, founded in 1989, runs worldwide several and country-specific emerging market funds and provides AMG with investing expertise called Healey Sean CEO and President AMG area. in that diversifies further that firm high-quality “a Genesis our broad product offerings to include emerging managed markets on investments behalf of a wide range of institutional investors.” Separately, the London-based management team of International Advisers led institutional a firm from buyout of that existing investment management arm, publicly traded publicly arm, management investment existing Asset . Management The combination creates the U.K.’s fourth-largest asset manager, with $220 billion in Provident acquired BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC ikd up picked Trust sector,as the of activepart less aaeet nuty ht a poie atatv risk- attractive provided has that industry management investment estate real the of segment concentrated highly er. For RMK, the asset management arm of Birmingham, of arm management asset the RMK, For er. P Ala.-based manag timber largest the is assets, industry’s the of 16% agement. more than $1 billion in adjusted returns. Management T R A pursuing clients. in disadvantage competitive a at placed be will they fear sparked that complaints from some foreign fund movemanagers who a business, fund the enter to plans it last that year said investment Holdings, agency, state powerful Separately, Singapore’s “Chip” Mason. Raymond CEO Mason and Chairman Legg said management,”asset in the have we vision global to importance of substantial strategic in the Asian markets is “Building our presence strategy of serving institutional clients with a diverse set diverse a with clients institutional serving of strategy 5 aaes n aot 1 blin in billion $16 about and managers 15 age eal Estate Source: Berkshire CapitalSecuritiesLLC R Average Seller AUM ($b) Average DealSize($m) T Combined Value ($m) Number of LTERNATIVE Evergreen ranked near the top of the timber pack, with pack, timber the of top the near rankedEvergreen otal Seller AUM ($b) EAL in 2004, with the primary one being in a historically a in deals being one three primary the with recorded 2004, in sector advisory estate real he 14 E , with about with Group, Resource Timber Hancock STATE Regions Financial Corp. Financial Regions Temasek Transactions from

T ■ vrre Tmeln Investment Timberland Evergreen RANSACTIONS I NVESTMENTS A Wt approximately With Wachovia. UM and 1 million acres under man

managers, isahighlyconcentrated segment of thereal estateadvisorybusiness thathas

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business. Timber, withapproximately 15

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2003 21.4 $6 billion bank deal that turned Regions into a major bank for a variety of institutions. varietyof a for business, with about $6 billion in billion $6 about with business, Advisors Realty SSR the included also involvedit ily funds, bond of portfolio a busi estate real U.S divestingits of process the began lia ( Estate Real ing forceintheSoutheast. arm, to insurer 2003, in while component, advisory estate real a with manager asset another Nvest, in interest 48% its sold Life Met 2000, In deal). SSRM the on more TowerFund diversified highly its including funds, commingled and accounts separate both manages A from Management of Inc.’spurchase million $375 component: advisor estate real significant a ness in2003. off its retirement business, including a real estate advisory these dividend plays would fare in such an environment. an such in fare would plays dividend these howabout fears stirred hikes rate interest of talk as April, than a decade ago, the firm manages investmentsin manages firm the ago, decade a than as firm 361 UM 5.4 90

In the ﬁnancial markets, In a second deal, management at management deal, second a In One other asset management deal of note last year had year last note of deal management asset other One 4 . (In total, SSRM had $52 billion in billion $52 had SSRM total, (In . 2004

Prudential Financial Fudd more Founded Management. Capital Adelante

1.3 3.8 17 51 3 A UM : $3 billion) led a buyout and recast the recast and buyout a led billion) $3 : manages more than $15 billion in as in billion $15 than more manages estate mutual funds. ager akt nie fr h ﬁt ya run year ﬁfth the for indices market most beating to way its on appeared and recovered quickly sector the But sets, primarily through a variety of real largest the is which company, The expectations. of end low the on falling pricing with IPO, an in million $100 some raised it September,as in company traded licly Separately,ning. man asset estate real lhuh h da primar deal the Although MetLife. became a pub a became Steers & Cohen REITS of Corp. Lease Lend Austra .

REIT suffered a sharp sell-off in State StreetResearch& State aae i te U.S., the in manager Last year, lacked. Regions Fi it institutional expertise the in ﬁlls business berland Tim trust the its accounts, in ments invest timber aged man already RMK Although in vestments. alternative ing no Planters Corp. Union acquired also nancial f rdcs includ products, of Lend Lease Lend A UM

of Memphis, a Memphis, of .) SSR Realty SSR .) (see p. 9 for 9 p. (see BlackRock sold Cigna

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4 Highbridge .1 81 3 Highbridge Highbridge Capital Management 326 768 2000 2001 2002

S Merrill Lynch Merrill

at historical rates. at historical rates. ’s $833 million purchase of RMF Investment Group, Group, Investment RMF of purchase million $833 ’s

one of the world’s largest hedge fund managers, with with managers, fund hedge largest world’s the of one

, UM of $13 billion. Lehman already owns a minority stake stake a owns minority already Lehman of $13 billion.

Worms and Cie Worms A multi-strategy hedge fund firm, Highbridge was Just Just after the JPMorgan JPMorgan Chase is itself no stranger to hedge funds. Affiliated Managers Group A UM reported reported to be in discussions with by by Group management asset largest the was company, funds of fund a 2002. in deal founded in 1992 and has accumulated $7 billion in A pay pay as much as $1.4 billion for a majority stake in hedge fund manager its necticut. A leading quantitative investment management firm and hedge fund manager, U.K. acquisition,fourthofitsmaking by November in year tive managerfundhedge eration from risk by avoiding the star system common at many hedge funds. The only firm’s downside, in the eyes of some observers, relates to its success: with a relatively high level of assets, Highbridge may be hard-pressed to continue generating superior performance while building Prior to the deal, the firm managed around $3 billion in hedge funds in Europe Asia and and another $8 billion in fund of funds. The company said Highbridge will contin ue to be run as a separate see “We entity. this transaction as perhaps the vanguard of the institutionalization of the said hedge Highbridge fund managing industry,” member and co-founder Glenn Dubin, who added: “Having one of the world’s largest and most highly regarded financial institutions as a partner will undoubtedly strengthen our portfolio financing operations and access to intellectual lines.” capital across product and business observers believe it could fetch as much as $1.5 billion. $1.5 as much as fetch could it believe observers was “investigating strategic options” for its business and had had and business its for options” strategic “investigating was retained in the firm. Additionally, fund of funds giant giant funds of fund Additionally, firm. the in The New York-based company is viewed as a solid risk manager that has also managed to insulate its own op RANSACTION T - - - - Transactions UND F EDGE r AUM ($b) AUM otal Seller Average Seller AUM ($m) AUM Seller Average Number of ($m) Value Combined T Deal Size ($m) Average H Source: Berkshire Capital Securities LLC : - - - UM A being a prime a being Citigroup agreed to RAB Capital ( JPMorgan Chase JPMorgan

he hedge fund arena continued to generate a great deal great a generate to continued arena fund hedge he of buzz in 2004, as the industry witnessed solid fund Meanwhile, buyers are seeking to minimize risks by In total, there were ﬁve hedge fund

Investment Management Industry Review 2005 Management Investment $1.2 billion)—the first public flota London-based T Hedge Funds / Private Equity / Private Funds Hedge rience with risk management make the vehicles a and managers asset banks, diversified The more fit. comfortable private banks that count wealthy individuals and institu tions among their clients have remained on the sidelines for the most part, but are considered likely buyers in the their build to begun already have banks Some ahead. years with capabilities, fund hedge own subsidiary. Investments through its Tribeca example, paying less of the total purchase stretching price contingent payouts at over a closings period that and can last from three to ten years. For the most part, valuations are being assessed by distinguishing between the profitability of management fees and performance fees and applying a discounted multiple for the latter. The IPO last year of tion of a hedge fund manager—is also viewed as an additional tool for creat benchmark. ing a valuation worth in 2004, deals of and fund funds record previous the topping billion, $1.1 set in 2002 of $1 billion. For the sec asset largest the years, three in time ond the within place took deal management as sector, ognition, hedge funds were also aided by the disappoint ing performance of equities for most of the year, which underlined for many wealthy individuals and institutions strategies. the need for alternative around to doubled nearly have assets fund hedge Overall, $900 billion since 1999, while the number of funds has doubled to 7,000. In 2003, U.S. institutions had close to $66 in billion hedge invested funds, but researcher Casey, Quirk & Associates projects the number $300 billion will by 2008. The percentage climb of institutions now to investing in hedge funds has also been climbing rapidly, doubling between 2000 and 2003 to 23%. Amid all this excitement, in 2004 the industry as a whole posted lower returns than in prior years and did witness a in slowdown in the second quarter. inflows Despite the interest strategic the in universe the sector, of actual suitors for hedge funds remains limited for now banks primarily and to other investment financial services organizations, whose large trading operations and expe inflows inflows in the opening months of the year and recorded one major transaction. In their quest for mainstream rec BERKSHIRE CAPITAL SECURITIES UK LTD BERKSHIRE CAPITAL SECURITIES LLC an institutional client base. base. client institutional an in its first deal since the collapse in 2002 of of 2002 in collapse the since deal first its in firm based in Connecticut, in firm based Connecticut, Markets Capital Associates sets held by its affiliates. affiliates. its by held sets est. tants and institutional clients expect.” In 2002, 2002, In expect.” clients institutional and tants acquired hedge fund manager manager fund hedge acquired P comer in billion $1.4 with group acquired T A pointed to the rapid growth of the fund of funds arena arena funds of said, and fund the of growth rapid the to pointed and chairman of president vice O’Hanley, Ronald deal, the managers explaining of In strategy. manager and funds of fund a follows and since 1999. In a smaller fund of funds transaction, new transaction, funds of fund smaller a In 1999. since clients and cement the relationship the two firms have had offeringsproduct enhance for manager funds hedge in fund. hedge a in investment For 1998. in founding its since assets in growth annual compound 57% recorded strategies, in-depth analysis and robust processes consul processes robust and analysis in-depth strategies, holding company with $4.6 billion in in billion $4.6 with company holding a is Alliance Asset tools. investment of range a through the hedge fund in which Asset Alliance held a 50% inter 50% a held which Asset in Alliance fund hedge the UM age tutr n auto. SinceJanuary1997,BerkshireCapitalhascompleted moretransactionsintheinvestment managementandsecuri structure andvaluation. transaction alternative on clients our advise to which from perspective critical uniquely a provides which database, transaction extensiveproprietary an developed exclusively, Capital sectors Berkshire these target to investmentbank mandate, first our the As focus. to securities and dedicated management investment an staff with group support institutions financial and largest the professionals constituting 40 than more of consists team Capital Berkshire The Headquartered in New York City, the firm has offices in London,businesses. Denverservicesfinancial andrelated Philadelphia. and firms securities involvingtransactionsinvestmentand venturemanagement merger,connectionwithacquisition,in divestiture joint1983 sinceadvisingclients and been Berkshire hasCapital valuation/strategic advisoryassignments. under management with an aggregate value in assets excess of of $7 billion billion. $300 Weto haveclose also of completed more transfer than involvedthe 150 haveindependent transactions These transactions. completed 185 over on ties industries than any other investment banking firm. We have advised buyers and sellers, both foreign and domestic, In an all-New Yorkan transaction, In , more than half of which is in hedge funds, and has has and funds, hedge in is which of half than more , here were several deals in the fund of funds area, area, funds of with fund the in deals several were here pne Capital Spencer 1 6 acquired an interest an acquired Management Asset BayStar Alpha Investment Management, a fund of funds Mellon Financial Mellon “ EACM ’s institutional roots ensure the quality quality the ensure roots institutional pcaie i de-au investing deep-value in specializes Spencer Capital Management Capital Spencer About Berkshire CapitalSecuritiesLLC AMG Mellon’s A EACM UM ’s Asset Alliance Asset acquisition of of acquisition the largest. A 20-year-old 20-year-old A largest. the Safra’smanagement wealth . The deal was designed to designed was deal The . HBV Capital HBV , the deal marked its first first its marked deal the , had $4.5 billion in had billion $4.5 institutional business, institutional Safra National Bank National Safra A UM , including as including , took a stake stake a took Beacon Hill Beacon , Evaluation Evaluation which had had which Mellon A UM - - - - , , ,

CITCO Group CITCO h ga o cpuig 1 ilo in billion $1 capturing of goal the with funds of fund investmentsin strategic make to plans uoen rvt eut fns from funds equity private European capital throughtheaffiliationwith to access and efficiency its enhance to hoping is funds, of fund two operates which Ascendant, deal. major first its including $5 billion in in billion $5 including institutions, from commitments equity private in billion Philadelphia, suburban in Based firms.” both of clients individual respective and the institutional better serve to us enable will and nesses Lane ilton for sense strategic tremendous makes transaction of chairman vice Rogers, Hartley Said strategies. investment of a variety across assets fund court in New York-based New in fund worlds, cluding a structured private equity fund of funds. year, last up started company management ment in million$270 for praised managers. assetinvolving convergence of the private equity and hedge fund busi fund hedge and equity private the of convergence Stearns net worth investors in the private equity arena. management and advisory services to institutional investment and high customized provides which business, finance There were three private equity deals of note last year last note of dealsprivateequity three were There In a notable meeting of the private equity and hedge hedge and equity private the of meeting notable a In A atraie invest alternative An Partners. Capital Ascendant , founded in 1992, has $1.5 billion in hedge fund of of fund hedge in billion $1.5 has 1992, in founded , BDC acquired and and for the innovativethefor productscreated,hasit in Hamilton Lane Hamilton (which retained a minority share). share). minority a retained (which Richcourt (see p. 13 for more details)morefor 13 p. (see BDC Financial ihor Group Richcourt A UM , as it reflects the accelerating accelerating the reflects it as , oda Sachs Goldman . aitn Lane Hamilton ■ acquired a controlling stake a acquired controlling ’s private equity specialty BayStar Hamilton Lane Hamilton A UM oit Generale Societe , a subsidiary of of subsidiary a , sedn was Ascendant ; . oversees $34 $34 oversees curd two acquired , while , Bear Stearns BayStar : “This “This : Ham Rich Bear ------

Ofﬁcers

H. Bruce McEver, Chairman Richard D. Miles 212-207-1001 212-207-1830 [email protected] [email protected]

R. Bruce Cameron, President Elizabeth Bloomer Nesvold 212-207-1013 212-207-1014 [email protected] [email protected]

Caleb W. Burchenal R. Lawrence Roth 303-893-2899 212-207-1048 [email protected] [email protected]

Richard S. Foote Mitchell S. Spector 212-207-1012 212-207-1828 [email protected] [email protected]

Ted J. Gooden Jonathan Stern 212-207-1043 212-207-1015 [email protected] [email protected]

Scott Ketner Glenna B. Webster 212-207-1042 +44 (0)20-7493-1552 [email protected] [email protected]

Advisory Directors

Hoyt Ammidon, Jr. The Hon. James Ogilvy 212-207-1000 +44 (0)20-7493-1552

Andrew Martin Smith W. Stevens Sheppard +44 (0)20-7493-1552 212-207-1000

Donald K. Miller Patrick von Stauffenberg 212-207-1000 +44 (0)20-7493-1552 Investment Management Industry Review 2005

535 Madison Avenue, 19th Floor Cayzer House New York, NY 10022 30 Buckingham Gate (212) 207-1000 London SW1E 6NN +44 (0)20-7493-1552 999 18th Street, Suite 3000 Denver, CO 80202 Berkshire Capital Securities LTD (303) 893-2899 is authorized and regulated by the FSA

15 East Uwchlan Avenue, Suite 404-406 Exton, PA 19341 (484) 875-4107