The president and chief executive officer of Highbury Financial Inc. says the Denver asset manager will look to acquire more mutual fund assets, perhaps from banks looking to get out of proprietary asset management, now that the company has completed its purchase of ABN Amro’s U.S. mutual fund business.
In April the U.S. asset management arm of the Amsterdam banking company ABN Amro Holding NV became the second Chicago financial services company in a month to use the technique known as fund “adoption” to quit proprietary fund distribution in order to avoid rising regulatory costs and overcome limited distribution. It agreed to sell its 19 portfolios, with $5.5 billion under management, to Highbury for $38.6 million.
Fund adoption let the ABN Amro unit continue subadvising the funds, but Highbury became their exclusive distributor.
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. (Harris is owned by Bank of Montreal.)
Highbury, which went public in January, was formed last year to buy financial services businesses. Richard Foote, its president and CEO, said its internal growth strategy is to expand the Aston Asset Management unit it created in April.
Mr. Foote said Aston will grow organically, through fund adoptions, and by acquiring assets from companies, including banks, looking to get out of proprietary fund management. He said Highbury has $7 million in excess capital — and no debt — in order to make deals from here.
“We want to take advantage of the excess capacity that Aston has and look to acquire from other owners, particularly banks, that are perceived to have insufficient scale,” he said.
Companies such as Phoenix and Federated Investors Inc. are also active buyers and fund adopters.
Daniel T. Geraci, an executive vice president at Phoenix and the president and chief executive officer of Phoenix Investment Partners, has said 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 fund portfolios, he said, by choosing a partnership with a company like his rather than selling their fund units outright.
Mr. Foote said Highbury hopes to use fund adoptions and acquisitions to diversify its fund complex. About 58% of Aston’s assets are in U.S. large-cap growth funds.
“We want to diversify into other nonequity vehicles,” he said. “Fixed-income and real estate funds would be interesting, and so would international and value managers in order to balance our portfolios a bit.”
The company also wants to diversify its distribution, he said. Aston has 18 wholesalers and 400 selling arrangements. It is distributing through defined contribution plans, independent financial advisers, and financial planners.
“It makes sense for us to try to partner with people with different distribution tactics that want to continue managing money,” Mr. Foote said. “We can bring them enormous operational efficiencies.”
“Banks certainly have lots of customers, and they have mutual funds that perhaps have insufficient scale, and that makes them attractive partners for us,” he said. “We want to work with companies like this.”
