Managers looking good to PE firms

Investors love "cash cow' sector because of attractive growth prospects

By Rick Baert | May 13, 2013
Article from http://www.pionline.com/article/20130513/PRINTSUB/305139971/managers-looking-good-to-pe-firms

Private equity firms' interest in money manager investments is rising in tandem with the managers' increases in assets under management and revenue.

“There'll be more private equity money coming into money managers,” said Ralph F. “Chip” MacDonald III, Atlanta-based partner at law firm Jones Day's financial institutions litigation and regulation practice. He said The Carlyle Group LP was “ahead of the curve” in its $780 million deal for a 60% stake in TCW Group, which closed in February.

Money management firms are “a cash cow” for private equity investors, added Sam Yildirim, partner and U.S. asset management deals leader at PricewaterhouseCoopers LLC, New York. “As long as they do their due diligence and understand the business and price it right, asset management is great. Their assets under management generate revenue, making them great deals for private equity managers.”

“It's an attractive asset class for a lot of reasons,” added Mr. MacDonald. “It's a cyclical asset class, and now's a great time for asset management. Look at the stock prices of publicly traded asset management firms. They're a nice proxy for the market. They've done well, and their assets are going up accordingly.”

“It's a growth business, not a venture business,” said Chris Browne, New York-based managing director at Sandler O'Neill & Partners LP. “Private equity investors aren't seeding startup businesses, unlike health care or technology ... Private equity will always have an interest in asset management as long as asset management is a growth business.”

And there's a lot to like on the money manager side as well, for those who want to maintain investment independence and facilitate management buyouts — things that would be more difficult with a corporate buyer.

“There's a lot of interest in asset management from both private equity and corporate buyers,” said Ms. Yildirim. “Private-equity-backed management buyouts can be very attractive to strong management teams as it involves fewer business disruptions. Generally they do not involve integration, which can represent significant change, key management jobs are safer and management has a stake in the future success of the business through share ownership and/or stock options.”

The timing also is right for many money managers to explore private equity investment, whether for key-man issues, in which founders are contemplating retirement and deciding how to pass on the firm to the next generation, or for a lifeline to a struggling firm.

“Managers can be a victim of their own success if it's a privately owned firm,” said Mr. MacDonald. “How do they monetize the assets and pick a point in time to keep the firm going, but then the next generation can't afford to buy it. That's where private equity firms come in.”

Sources say Janus Capital Group Inc. is a struggling money manager that might benefit from a private equity investment, given its long-term asset decline and plunge in the value of its stock — to $8.91 as of May 10 from $30 in June 2008.

John R. Groneman, Janus' director of investor relations and treasury, said officials would not comment.

Some firms, like TA Associates Management LP, bought stakes in money managers before the 2008-2009 financial crisis, and in those cases, their eight-year investment cycles are at an end. TA Associates' stake in Boston-based quantitative equity firm Numeric Investors LLC is now up for sale.

“The time cycle makes sense for firms to talk about exiting,” said Ms. Yildirim. “But it's not a function of them not liking this sector.”

Money managers' investment strategies are important to private equity firms, Ms. Yildirim said. For equity managers, particularly active managers, outflows into passive strategies might make them less attractive. “Depending on the type of manager, timing is very important, determining when people will come back into these strategies,” she said.

“Private equity firms are being more selective in a post-2008 environment,” said Sandler O'Neill's Mr. Browne. They're not just interested in a track record but in attractive asset classes, more alternatives, more emerging markets, more diversified asset managers. ... You can't be plain vanilla.”

What also matters is the people, Mr. MacDonald said, with, for example, the age of a firm's principals being as important as the overall state of the market.

“You're dealing with a people business, the people who make the money,” he said. “If you're going to invest, the concern is, are the people who took you to the dance going to stay on the dance floor with you?” He also said you can't alienate investment consultants and pension fund clients, among others. “You've got to communicate very well with consultants and pension fund clients,” he said. “You've got to give them some comfort.” 

This article originally appeared in the May 13, 2013 print issue as, "Managers looking good to PE firms".

— Contact Rick Baert at rbaert@pionline.com | @Baert_PI

Rick Baert | May 13, 2013
Article from http://www.pionline.com/article/20130513/PRINTSUB/305139971/managers-looking-good-to-pe-firms

In Vegas, investors strip hedge fund managers of their secrets

By Svea Herbst-Bayliss and Katya Wachtel
Published May 10, 2013, Reuters
Article from: http://www.foxbusiness.com/news/2013/05/10/in-vegas-investors-strip-hedge-fund-managers-their-secrets/#ixzz2SxeCOdtx

LAS VEGAS –  In Las Vegas this week, hedge fund investors rubbed shoulders with big-name managers, Hollywood heavies and political swells against a Bellagio hotel backdrop of glitz and gambling.

For the fifth straight year, private jets dropped off billionaire managers to schmooze clients and share success recipes with legions of hedge fund faithful who came on commercial airliners for the SkyBridge Alternatives Conference, which ran from Tuesday evening through Friday.

Anthony Scaramucci, founder of conference sponsor SkyBridge Capital and affectionately known as "the Mooch," played host to Daniel Loeb, one of the few managers producing big returns this year; Al Pacino; former French President Nicolas Sarkozy; and former U.S. Defense Secretary Leon Panetta.

For many of the people attending what has become the $2.25 trillion industry's biggest annual event, the caliber of the panelists (including Jane Buchan who runs PAAMCO and Leon Cooperman who runs Omega Advisors) and the chance of discovering even one new or unusual investment idea were the main drawing cards, followed by a concert by Grammy Award-winning band Train, blackjack and cocktails by the pools.

Clayton Cheek, a managing director at hedge fund Onex Credit, has attended the conference for four years, believing that what he learns here enables him to stay competitive by networking with contacts and hearing about hot-button topics: "If you stop evolving in this industry, the Darwin effect diminishes your business very quickly."

Behind the scenes, investors jockeyed to find the next star manager - this generation's George Soros or Stanley Druckenmiller. John Paulson was one of a handful of top-tier speakers who headlined the event, though according to people who saw him he flew commercial after two years of heavy losses.

Investors with the power to write multimillion-dollar checks groused about recent sluggish returns. The average hedge fund gained 4.6 percent through April, according to eVestment, while the S&P 500 Index rose 12 percent.

The industry's white-hot appeal has also been cooled by ongoing regulatory probes. This week Philip Falcone, who headlined here last year, agreed to a two-year industry ban to settle fraud charges with the Securities and Exchange Commission.

Steven A. Cohen, who spoke two years ago, extended his investors' redemption deadline as his SAC Capital Advisors scrambled to keep clients in the midst of the government's insider trading probe. Neither Cohen nor SAC has been accused of wrongdoing.

"I'm not here to be a critic of hedge fund managers," said Frank Caprio, Rhode Island's former state treasurer who is running for the job again next year. "But any alternative investment has to be justified by superior long-term returns." He added that if hedge funds don't deliver, "There is no place for them under my watch."

Caprio, who oversaw the state's $7 billion pension fund from 2007 to 2011, wasn't alone in his blunt assessment.

Jim Berardo, who invests for a wealthy family and is based in Houston, turned his back on hedge funds several years ago. Still, he wanted to participate and maybe find new talent. "We've done so well everywhere else since then, we've felt no need" to put money back into hedge funds, he said, adding that the high fees many hedge funds charge for mediocre performance were "ridiculous."

What irritates investors most are the dull ideas, several attendees said, with too many managers talking the same talk.

"There was a panel on investment opportunities in credit, and all of the panelists sounded the same," said one investor. Berardo said he wanted to see if "anybody out there not following the herd."

As more people chase fewer good ideas and making money is becoming harder, investors are firing the underperformers more quickly. The conference was witness to their skepticism.

Philip Weingord's $2 billion Seer Capital Management gained 26 percent last year, far more than many bigger and more prominent names. His fund, which invests in debt, drew interested inquiries at Bellagio.

"The level of sophistication among investors is far more advanced now, and they are asking very good and detailed questions."

(Reporting by Svea Herbst-Bayliss; editing by Prudence Crowther)

Svea Herbst-Bayliss and Katya Wachtel
Published May 10, 2013, Reuters
Article from: http://www.foxbusiness.com/news/2013/05/10/in-vegas-investors-strip-hedge-fund-managers-their-secrets/#ixzz2SxeCOdtx

SICO equity funds win top grading in Mena

Posted on » Thursday, May 09, 2013
From http://www.gulf-daily-news.com

MANAMA: Bahrain-based regional investment bank Securities and Investment Company (SICO) yesterday said that all five of its equity funds received the highest grading in the Middle East and North Africa (Mena) region from Standard & Poor's Capital IQ.

In its 12-month review covering the period to December 31, S&P Capital IQ graded three of SICO funds Gold, while two were graded Silver.

According to S&P Capital IQ, the underlying factors for SICO's fund grading included a strong and growing investment team with relatively modest staff turnover, the development of disciplined risk monitoring procedures compared with its peers and a consistent track record and continuing outperformance of funds relative to their benchmarks and peers.

Putting SICO's performance into context, of the 150 or so funds investing in the Mena region, only 18 achieved S&P Capital IQ gradings in 2012, with only three securing a Gold grading and fifteen achieving Silver status.

Of these funds, the only three that achieved a Gold grading are all managed by SICO.

The Khaleej Equity Fund, which invests in GCC listed equities, achieved a return of 5.9 per cent for the year, and has outperformed its benchmark for seven out of eight years since its March 2004 inception.

It is one of the few funds in the region to be awarded a Gold fund grading and a five-year long-term grading by Standard & Poor's Capital IQ.

The fund also received the Outstanding Fund Performance & Innovation award at the fourth annual MENA Fund Manager Performance Awards ceremony in January.

The SICO Gulf Equity Fund, which invests in GCC-listed equities, excluding Saudi Arabia, delivered a return of 6.1pc for the year.

The fund, which is graded Gold, has outperformed its benchmark in five of six full calendar years since its March 2006 launch.

The SICO Arab Financial Fund, which invests primarily in Mena financial sector equities, achieved a return of 2.9pc in 2012.

Graded Gold, the fund's relative returns have been consistently strong, outperforming the benchmark in each calendar since its inception in August 2007.

The SICO Selected Securities Fund, which invests principally in Bahrain-listed equity and debt securities, achieved a return of 1.2pc for the year.

Graded Silver the fund has one of the longest track records in its asset class, and has outperformed its benchmark in 11 out of 13 years since its May 1998 inception.

The SICO Kingdom Equity Fund, which invests primarily in Saudi-listed equities, delivered a return of 8.7pc for 2012.

The fund has been graded Silver and has posted an initial strong performance relative to its benchmark since its launch in February 2011.

In addition to these equity funds, the SICO Money Market Fund recorded an annualised return of 0.99pc in 2012.

Launched in May 2010, the fund invests in regional investment grade money market instruments such as GCC government bills and notes, corporate paper, and domestic banks' term deposits.

"SICO's prudent investment style has enabled us to deliver another strong performance for our clients in 2012, despite markets remaining volatile during the year," said SICO chief executive Anthony Mallis. "The combination of our regional insight and quality of research is a key factor in enabling SICO to provide consistent and stable long-term returns to our investors.

"Looking ahead, equities remain the preferred asset class as cash continues to provide a near zero return. GCC equities are forecast to generate moderate returns in the range of 10pc to 15pc in 2013, driven by an improvement in overall fundamentals, multiple re-rating and earnings growth. Regional markets are currently significantly undervalued, and we believe offer attractive opportunities to long-term investors."

During 2012, SICO maintained its status as Bahrain's largest GCC public markets asset manager, with total assets under management increasing by 10pc to BD226m. Assets under management comprise SICO's own funds, funds sponsored by other institutions for which SICO acts as the investment manager and discretionary portfolio managed accounts, by which SICO provides tailor-made investment solutions to fixed income and equity oriented institutional clients.

Posted on » Thursday, May 09, 2013
From http://www.gulf-daily-news.com