* 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 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
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.
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
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
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."