Guardian Life Insurance Co. of America says it will buy a majority stake in a San Francisco fund company that would more than triple its mutual fund assets.
The New York insurer announced Wednesday that it plans to buy 65% of RS Investments, which specializes in growth and value funds and institutional accounts. The deal would expand Guardian's fund family from 13 to 24 portfolios and from $5 billion of assets managed to $17 billion.
Guardian's portfolios are to be incorporated into RS' family of funds, the chief executive officers of each company said in interviews Wednesday, and RS will operate as an independent subsidiary of the insurer. Terry Otton, the California company's CEO, said Guardian offers core equity funds, fixed-income products, and two international funds.
"Historically, we have been a growth and value manager," Mr. Otton said. "There is very little fund overlap. For our shareholders, we created a much more broadly diversified suite of mutual fund products."
Dennis Manning, Guardian's CEO, said the deal would enhance and develop its fund family. "It was important for us to find a partner in the asset management business. We wanted to find a way so that RS was still in place."
Analysts said continuing rapid consolidation in the mutual fund business leaves smaller companies needing to find large parents in order to develop distribution and assets under management. Burton Greenwald, a Philadelphia analyst at BJ Greenwald Associates, said allying itself with a company like Guardian, instead of a mammoth bank, lets RS Investments maintain some control.
"We are an independent, employee-owned firm," Mr. Otton said, "and our success and culture is driven by our ability to hire and retain people and maintain that independent spirit." Through the Guardian deal, "we now have the stability of a larger organization and operational efficiencies and can provide greater resources for shareholder servicing and distribution."
He said he does not believe the fund family will try to develop bank-channel distribution.
The deal is expected to close by Sept. 30, Guardian said. Mr. Manning said his company has no current plan for further deals but wants to grow organically. "Growing assets under management is OK," he said, "but our top priority is to maintain a strong investment performance." Mr. Otton agreed: "Developing a strong long-term investment performance is what has made RS successful. If investment performance is consistent, you can hide under a manhole cover, and money will find you."
