Managing Partner Don Putnam was interviewed by Imogen Rose-Smith for an article in Institutional Investor about the declining attraction of hedge funds to banks and reinsurers. To read the full article, click here.
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Author: James Comtois
Source: Pensions & Investments
Russell Investments' asset management and consulting businesses will most likely be sold by the London Stock Exchange Group PLC, which is purchasing the entire firm for $2.7 billion, sources say.
The price tag for those business lines could be between $700 million and $1 billion, the sources estimate.
Sources suggest that State Street Corp., Boston; Vanguard Group Inc., Malvern, Pa.; Legal & General Group PLC, London; and SEI Investments Co., London, would be possible bidders.
Most agree Russell's indexing arm is the plum sought by the LSE Group. Russell first introduced its indexes in 1984. The firm, which was originally formed in 1936, began investment consulting in 1969 and managing money in 1980. Russell, Seattle, is owned by Northwestern Mutual Life Insurance Co., which bought the firm in 1999.
“Without a doubt, the legacy business will be spun out of the London Stock Exchange,” said Donald Putnam, a San Francisco-based managing partner of investment bank Grail Partners. “They had to buy the bath water with the baby. They had to do a single deal and separate the companies later.”
Mr. Putnam said Russell's core money management and consulting businesses are “not compatible with the indexing business,” because the primary purpose of an exchange is to have a “neutral venue for transacting.”
Jeffrey MacLean, Los Angeles-based CEO at Wurts & Associates, agreed: “The people I've talked to think that the stock exchange won't have any use for the asset management and consultant divisions.”
Mr. Putnam also said he believed the two businesses would be sold as a single unit and could fetch up to $1 billion.
Who is most likely to step up for the sale and what will they do with the businesses? “Those are difficult questions that I don't know the answer to,” Mr. MacLean said. “There's speculation as to whether the asset management and consultant divisions will be spun off as one unit or sold in pieces.”
LSE spokesman Tom Gilbert said the stock exchange group will conduct a review of Russell's $256 billion investment management and consulting divisions to see how they fit with the overall organization. That review is expected after the deal's completion at the end of 2014 or beginning of 2015. He declined to provide additional details.
Russell spokesman Tim Benedict referred inquiries to the LSE.
“Right now there's very limited information out. But if there was a sale announced, it wouldn't surprise me at all,” said Peter K. Lenardos, an analyst at RBC Capital Markets LLC's London office, who covers diversified financials in its global equity division.
“The London Stock Exchange has carved out a reputation for being a best-in-class operator in the niche that they're in, and I don't know if asset management is where their skill set lies,” Mr. Lenardos added.
A June 26 report co-authored by Mr. Lenardos said the Russell acquisition will enable the exchange “to compete more effectively with (global index provider) MSCI, will improve liquidity in LSEG's shares and will provide more recurring revenue that is typically assigned a higher multiple by the market.”
“The London Stock Exchange now owns a big asset management firm,” said Fernand Schoppig, president of the money management consulting firm FS Associates, Inc., West Orange, N.J. “It's very likely that they'll sell off the assets and keep the indexes.”
Some of Russell's institutional clients did not express much concern over any impending change.
“We've had a great working relationship with Russell for over 20 years. Throughout the sale process we will continue to maintain our confidence in Russell and relationship with them. They have a great culture and talented people,” said Osey “Skip” McGee Jr., executive director of Baton Rouge-based Louisiana Sheriffs' Pension & Relief Fund.
The $2.7 billion pension fund has hired Russell for investment consulting, money management and transition management services.
Scott Simon, chief investment officer of the $4.1 billion Colorado Fire & Police Pension Association, Greenwood Village, said staff members aren't terribly concerned. “We use them for a specific mandate (cash overlay), and we don't see this transaction affecting their services for that group,” Mr. Simon said. “We see no cause for concern.”
Charles Wollmann, spokesman for the $19 billion New Mexico State Investment Council, Santa Fe, said in an e-mail that the council “will monitor this transaction and evaluate it for potential impact on the services” that Russell provides.
Russell is one of five transition managers New Mexico has on its bench.
Opportunity for competitors
In terms of what a possible sale of Russell's divisions could mean to a competitor like Wurts, Mr. MacLean said: “There are a lot of talented people at Russell, and we've been fortunate to have hired some of them. Our close proximity to Russell in Seattle is a potential opportunity for us.”
Upon completion of the deal, Russell Investments President and CEO Len Brennan will join the exchange's executive committee. It remains to be seen, however, what Mr. Brennan will do if and when the investment division is sold.
“The Russell brand has a good reputation in the industry,” noted Mr. Schoppig.
“The really interesting question is how and when and by what process do they spin off this business,” said Grail's Mr. Putnam.
Mr. Lenardos noted that following the review, the next step for LSEG to take, should it choose to sell the business, “would be to test the market price for this asset. The only way to do that is to engage potential buyers.”
Manifold Partners announced the appointment of a new Chairman of the Board and a new member of its Scientific Advisory Board.
Fred Grauer, former Chairman of Barclays Global Investors, has stepped in to be Chairman of the Board of Manifold Partners LLC, replacing Donald H. Putnam of Grail Partners LLC, who remains on the board. Mr. Putnam continues as Chief Executive Officer of Manifold. Jeremy Evnine and Jim Creighton, both of Manifold Partners, are also board members.
Don Ezra, former Co-Chair Global Consulting, Russell Investments, has joined the Scientific Advisory Board, headed by Blake Grossman, also a former CEO and Chairman of Barclays Global Investments. The Scientific Advisory Board also includes Andrew Rudd, CEO of Advisor Software Inc. and former CEO of BARRA.
Mr. Grauer said “I have great respect for the talents of my Manifold colleagues with whom I have had a long and successful relationship. In business and innovation, the vital few make an extraordinary difference.”
“This is a big day for Manifold Partners” said Jim Creighton, a founder of Manifold Partners. “It is a pleasure to welcome Fred and Don to the Manifold Partners team.”
Mr. Creighton and Chief Science Officer Jeremy Evnine previously worked at BGI and were key to these recruitments. “Fred and Blake have followed our work for several years” said Dr. Evnine “and we are excited to have them here. Don has exactly the gravitas and deep experience we need to help set our scientific strategy.”
Manifold Partners also announced the departure of its COO Mike Lawsky. “Mike built up our infrastructure during his ten months as our COO; we are grateful for his service and pleased to have him as a continuing investor in our firm and its products” said Mr. Putnam. An executive recruited by Mr. Lawsky four months ago resigned with him. Both men worked off-site in Newport Beach, and the Company has closed that facility.
Mr. Grauer was Chairman/CEO of BGI from 1983 to 1998 during which AuM grew from $12 billion to $619 billion. Mr. Grauer lives in the Bay Area and may be reached at FGrauer@ManifoldPartners.com.