ABN Amro Asset Management announced Friday that it had a deal to sell the distribution rights to its U.S. mutual fund business for $38.6 million to Highbury Financial Inc. but will remain subadviser to the funds.
The U.S. asset management arm of the Dutch banking company ABN Amro Holding NV, becomes the second Chicago financial services company in a month to use the technique known as fund "adoption" to exit proprietary fund distribution in order to avoid rising regulatory costs and overcome limited distribution. In late March Harris Investment Management Inc., a division of Chicago's Harris Bank, announced that its Insight Funds had been adopted by Phoenix Cos. Inc., a Hartford, Conn., financial services company.
In this form of deal, the buyer becomes the purchased funds' investment adviser, distributor, and administrator but hires the seller as subadviser.
Nancy Holland, the interim chief executive officer and president of ABN Amro Asset Management, said in an interview Friday that the deal will enable her unit to focus on managing its $35 billion of institutional assets and also help the fund family develop scale and increase distribution.
Highbury, a Denver company that went public in January after being formed last year to buy financial services businesses, is to pay $38.6 million in cash for the right to distribute the 19 funds, which have $6 billion under management.
Ms. Holland said the deal is very similar to the one unveiled last month for the U.S. fund family of BMO Financial Group's Harris unit, in that it enables ABN Amro to continue managing the funds' assets while allying itself with a partner to increase distribution.
Many banks are considering "creative ways" to exit the proprietary fund business, she said.
"Other banks, and really every responsible business person, is looking at their lines and business and trying to figure out how to generate the most profit," Ms. Holland said. "We are trying to figure out what is best served in the hands of other strategic partners. We are considering what lines of business to sell in order to gain scale and distribution."
Under terms of the proposed transaction, which still must be approved by the funds' independent board of trustees, shareholders, and Highbury's stockholders, Highbury Financial's investment adviser, Aston Asset Management LLC, would become the adviser to the 19 funds but would make a subadvisory agreement with ABN Amro to continue managing them.
The funds are currently advised by several ABN Amro Asset Management affiliates, including Montag & Caldwell Inc., Tamro Capital Partners LLC, Veredus Asset Management LLC, and River Road Asset Management LLC. Ms. Holland said that, when the deal closes in the second half of this year, Highbury and Aston are to retain most of ABN Amro's staff.
Kenneth Anderson, Stuart Bilton, and Gerald Dillenburg, who manage the business for ABN Amro, are to lead Aston after the closing, Highbury said in a press release Friday.
Daniel T. Geraci, an executive vice president at Phoenix and the president and chief executive officer of Phoenix Investment Partners, said during a March interview that it is difficult for small and midsize banks to generate the scale needed to make money selling proprietary funds. But banks can continue to manage their funds, he said, by choosing a partnership with a company like his rather than selling their fund units outright.
Harris' 19 Insight funds have about $10.5 billion under management and were expected to bring Phoenix's total to $47.5 billion once the deal closes this quarter.
Federated Investors Inc., which has been a prolific buyer of bank fund families in recent years, had grown to $213.4 billion of assets under management by Dec. 31. It added $774 million of assets through purchases of fund units in 2004 and 2005 from FirstMerit Corp. in Akron, Ohio; Riggs National Corp. in Washington; and the former Banknorth Group in Portland, Maine. It has closed nine deals for equity and bond assets since 2000.
A fund adoption is ideal for companies like Phoenix or Highbury because it adds products that have established track records to fill gaps in a company's product lineup, Mr. Geraci said. Phoenix did its first adoption in November 2004 with a $16 million-asset mid-cap value fund run by Sasco Capital in Fairfield, Conn. The Phoenix Mid-Cap Value Fund had grown to $235 million of assets under management by Feb. 28.
In addition to this fund and the 19 from Harris, Phoenix has adopted three others - two from Janus that are subadvised by Vontobel Asset Management, the New York investment subsidiary of Switzerland's Bank Vontobel AG, and Turner Strategic Growth Fund from Turner Investment Partners in Berwyn, Pa.
Ms. Holland said ABN Amro Asset Management has retained its six money market funds; she did not disclose their asset total, however. No decision has been made on whether to keep or sell these funds, she said.
