Principal Global Investors CEO says firm seeking to acquire boutique asset managers

TOKYO, March 11 Tue Mar 11, 2014 3:38am EDT

TOKYO, March 11 (Reuters) - The head of New York-based Principal Global Investors said on Tuesday the $311 billion fund manager is looking into buying boutique asset management firms that invest in emerging markets and real estate to expand its portfolio of assets

PGI's chief executive, Jim McCaughan, said his firm, the asset management arm of Iowa-based financial services company Principal Financial Group Inc, hopes to finalise an acquisition, possibly in real estate, by the end of the year. He didn't identify potential targets.

"It's hard to say, but I would be a little disappointed if we don't close at least one during the remainder of this year," McCaughan told Reuters in an interview. McCaughan is in Japan to meet clients.

McCaughan said PGI, which bills itself as the 19th-largest pension manager in the United States, attaches more importance to doing the right deals than forcing the pace. PGI wants to acquire boutique fund management firms that invest in Europe and Asia as it already has strong presence in the United States, he said.

A new acquisition would follow last year's purchase of London-based Liongate Capital Management, a hedge fund of funds with assets of $1 billion. Boosted by inflows from equities, fixed income and real estate as well as the Liongate purchase, assets under management at PGI grew 10 percent last year.

Emerging markets remain a focus for PGI, McCaughan said. While they may have appeared to look less attractive based on their performance over the past year, they continue to provide a strong long-term investment theme as middle-class populations grow in countries around the world, he said.

"We are actively looking not only at emerging, but at so-called 'frontier' markets, the smaller and newer markets. So that would be a second broader area and that would be fixed income or equities," he said.

Currently, four asset management companies within the PGI group invest in fixed income or equities in emerging markets, with about $20 billion in assets in total.

With regard to Japan, McCaughan said PGI is happy with its business in the world's third-largest economy, despite losing a mandate to manage foreign equities from the $1.26 trillion Government Pension Investment Fund (GPIF) last year.

PGI has garnered more than 1 trillion yen ($10 billion) in assets over the last five years in Japan as institutional investors seek to diversify into foreign assets, such as U.S. high-yield bonds and international real estate investment trusts, he said.

The firm also saw strong demand in international equities management from Japanese institutional investors in 2013, McCaughan said.

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