Old Mutual's Bain gussies up for U.S. IPO goal, would follow ING

Wed Nov 28, 2012 12:49pm EST

* CEO Bain divests unwanted units, bolsters performance

* Bain: former boss taught him to defer to fund managers

* Unit could be worth about $2 bln on public market-banker

By Ross Kerber

BOSTON, Nov 28 (Reuters) - London-based insurer Old Mutual Plc is likely to follow its Dutch competitor ING Groep NV and move to take its U.S. money management unit public, analysts said, as tighter capital rules in Europe loom for the industry.

Such a move would create a new entry among the largest publicly traded U.S. asset managers and give the fund unit's chief executive, Peter Bain, additional currency to use for acquisitions in the consolidating field.

Old Mutual has said it is studying an IPO for the unit, which counts institutional investors as its main customers. Its decisions will be closely watched by other owners of U.S. fund firms pondering reconfigurations.

Bain has been cleaning up the once-troubled division since taking over in 2011, divesting some of the hodgepodge of autonomous investing firms Old Mutual acquired over the years.

Based in Boston, Bain's division will end up with about $200 billion under management, close to the $236 billion managed by ING's U.S. unit, which filed for an initial public offering on Nov. 9.

Outflows of investor cash have turned into inflows this year as performance has improved.

In a series of recent interviews, including one from his office on the 53rd floor of a Boston office tower and others by phone during a trip to London, Bain said he aims to keep bringing in money by helping his managers round up investors.

Bain insists he won't tell managers how to invest, however - a lesson he learned from Raymond "Chip" Mason, founder of Baltimore asset manager Legg Mason Inc, where Bain worked from 2000 to 2009.

"Talent wants to be appreciated," Bain said. "They don't want me to come to the table and argue about stock selection."

Investors seemed to have noticed improved performance by Old Mutual's managers. Adjusting for divestments, the business took in a net $2 billion from customers through September, reversing net withdrawals of $6.7 billion for all of last year and $12.6 billion in outflows in 2010.

PATH TO IPO

Bain says he's emphasizing attracting new customers. He helped Old Mutual affiliate Barrow Hanley recently sign an agreement to become a sub-adviser to Transamerica funds, part of Aegon NV. Exact terms are still to be worked out, Bain said, but the deal shows how affiliates can work more closely together and with the parent.

Financial executives say Bain's moves have put the asset management division well along the path toward offering its own shares, assuming customer inflows continue.

"They have the scale, so if they have the growth they can certainly do an IPO," said John Temple, president of Cambridge International Partners, a New York investment bank.

At the end of last year, value manager Barrow Hanley of Dallas was the largest of Old Mutual's affiliated investment units, with $60 billion under management at Dec. 31.

Other big affiliates include bond specialist Rogge Global Partners of London with $45 billion and quantitative investing shop Acadian Asset Management of Boston, with $42 billion.

A publicly traded Old Mutual U.S. asset-management business would be bigger than well-known firms like Janus Capital Group Inc, which had $158 billion under management at Sept. 30.

The most similar publicly traded competitor is Affiliated Managers Group Inc, also of Boston, which had $416 billion under management at Sept. 30 and also operates as the parent of various investment boutiques. Affiliated has a market capitalization of $6.6 billion.

A larger publicly traded competitor is Franklin Resources Inc, with $750 billion under management at Sept. 30.

Given Old Mutual's publicly disclosed 22 percent operating margin for the U.S. money management business, Cambridge's Temple estimates the unit could be worth about $2 billion on the public market at a rough industry-average multiple of 10 times earnings before interest, taxes, depreciation and amortization.

That compared with a rough equity valuation of about $7 billion at the same multiple for ING's U.S. unit.

The comparison is complicated by the fact that ING's spinoff will rework the amount of debt on its balance sheet before its IPO - and includes not just $236 billion in assets under management but also administrative and insurance units.

Old Mutual, ING and other European insurers have been slimming down ahead of new capital rules, known as Solvency II. Ten years in the making and still not completed, the new rules in Europe are designed to force insurers to hold capital reserves in strict proportion to the risks they underwrite.

Some large insurers have said the rules would force them to set aside too much capital for U.S. operations, which are already subject to local capital rules.

ING's planned U.S. IPO will help the company reduce its future capital obligations and meet the terms of its 2008 bailout to shrink its balance sheet, as well.

Old Mutual, which sells insurance around the world under its own name and brands like Skandia, has said a partial IPO of the U.S. money management business is possible, depending on its profits, growth and performance. An IPO would also help the insurer repay debt and dispel investor concerns that the group lacks focus.

TONING BAIN DOWN

Bain's outgoing personality is unusual in the staid asset-management world. He was a student actor at Trinity College in Hartford, Connecticut, portraying Benjamin Franklin, one of the U.S. founding fathers, and attorney Clarence Darrow, who defended teenage thrill-killers Leopold and Loeb in the 1920s.

After graduating from Harvard Law School he worked on mergers and acquisitions at Merrill Lynch and then for investment bank Berkshire Capital.

Berkshire President Bruce Cameron said Bain, full of swagger like the typical investment banker, needed some reprogramming when he first arrived.

That attitude did not go over well among the sober fund manager crowd, Cameron said. "It is not about trying to tell asset managers that you're smarter than them," Cameron said. "We had to tone him down."

After almost a decade at Legg Mason, Bain joined Old Mutual in 2011, replacing Tom Turpin, who took over after prior CEO Scott Powers left for State Street Corp in 2008.

Bain walked into what Temple called "a bit of a mishmash" and started slimming the firm down.

In October 2011, he arranged the sale of fund assets to Touchstone Investments. In February, 2012, Bain struck a deal to sell the Dwight Asset Management unit to Goldman Sachs Group Inc .

Just last month, he rolled out plans to sell five smaller Old Mutual units back to their managers, allowing the parent to focus on helping larger affiliates.

Olaf Rogge, CEO of Rogge Global Partners, said the slimming down gives the parent company greater ability to help the remaining units by seeding new funds or boosting sales efforts to institutional investors.

"Now they have fewer, more credible companies to offer, Rogge said. "On paper it makes sense. Whether their distribution will be more successful than hitherto, remains to be seen."

Bain's background creates extra interest in Old Mutual's prospects because recruiters have suggested Bain could return to Legg Mason. In October Legg Mason's CEO left, and tensions between its affiliates and the parent company have led to breakup talk. [ID:nL1E8L8GO9 ]

Bain has little to say on the subject. "I am really engaged as CEO of Old Mutual," he said. "We have turned this business and are succeeding."