Exclusive: Old Mutual to sell $2.3 billion mutual fund business

NEW YORK Wed Sep 7, 2011 2:37pm EDT

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NEW YORK (Reuters) - Old Mutual Asset Management, a subsidiary of London-based investment company Old Mutual PLC, is in talks to sell its $2.3 billion U.S. mutual fund business to Touchstone Investments, according to several people familiar with the discussions.

The acquisition would give Touchstone, which has $7.4 billion in mutual fund assets, the ability to gain assets and potentially substitute Old Mutual's managers with its own third-party managers, said Geoff Bobroff, a mutual fund consultant who had heard about the discussions.

Berkshire Capital, a New York-based investment bank, is handling the deal, according to people familiar with the situation.

Zach Kouwe, a spokesman for Old Mutual Asset Management, said the firm does not comment about rumors. Sharon Karp, a spokeswoman for Touchstone, an investment firm in Cincinnati, didn't return calls. Bruce Cameron, president and chief executive officer of Berkshire Capital, declined to comment.

Old Mutual PLC announced last year it wanted to do a partial IPO of its asset management unit. In February, the firm appointed Peter Bain, a former Legg Mason executive, as president and chief executive officer of Old Mutual Asset Management, replacing Tom Turpin, who left shortly after the company announced plans for the IPO.

Since his appointment, Bain has decided the retail fund business isn't core to the business, according to people familiar with the situation.

"They are going to pivot back to being a boutique, high-quality institutional manager that focuses on the subadvisory and institutional business rather than try to compete in the retail mutual fund business," said one person who had heard about the acquisition discussions.

Boston-based Old Mutual Asset Management has 18 affiliates and had $260 billion in assets under management, which includes its retail funds, as of June 30.

Old Mutual's retail funds have struggled recently. Eleven of the 17 funds that have three-year track records have underperformed their peers for that time period, according to Lipper. As of July 31, $297 million had been withdrawn from the fund since the beginning of the year, according to Lipper.

"Old Mutual really hasn't committed to building out the mutual fund business," Bobroff said. "They are a successful separate account manager."

While Old Mutual has expertise on institutionally managed separate accounts, it hasn't spent a great deal of time focusing on the distribution of its retail mutual funds.

For Touchstone, the acquisition makes sense given that all of its funds are managed by third parties.

"The risk for Touchstone is if they transition the funds to their own managers, whether financial advisers will stick around," Bobroff said.

(Reporting by Jessica Toonkel; editing by Jennifer Merritt and Walden Siew)

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