MFS Investments of Boston has rebounded from intense regulatory scrutiny and rumors that it would be sold.
Assets under management have reached $200 billion for the first time, and now Robert Manning, the Sun Life Financial Inc. unit's chairman and chief executive officer, says further growth may come more quickly than expected.
"All of this — the market timing issues and being put up for sale — made us a better company, and now we are looking for opportunities to scale up and grow," he said in a interview last week.
In November, after Sun Life decided not to sell the fund company, Mr. Manning said that he expected to increase assets under management 50% over the next three to five years, to $250 billion. In the next six months his unit gained $25 billion, raising its total to $200 billion as of April 15, and he said it might reach $250 billion sooner than it had planned.
"We had some medium-term goals, and we really pushed right through them," he said. "Reaching $250 billion in the next three to five years is certainly achievable now, but it may come a lot quicker than we initially thought."
Now that it is off the block, MFS will use acquisitions, fund adoptions, and organic means to grow, Mr. Manning said.
In February 2004 his unit announced $350 million of settlements with the Securities and Exchange Commission and New York Attorney General Eliot Spitzer in connection with improper mutual fund trading. Outflows were consistent in its funds during the year heading into that settlement, when the investigation was under way, and the outflows continued after the settlement.
"It takes you decades to build a reputation, but you can lose it pretty quickly," said Mr. Manning, who started at MFS in 1984 as a research analyst and was promoted to chairman and CEO in February 2004. "We acted appropriately three years ago to put those things behind us quickly. Most people don't bring the regulatory stuff up anymore. Investors want to make sure we have the right products and the right services and we are distributing them thoughtfully."
MFS, which Sun Life acquired in 1982, faced additional uncertainty in September, when the Toronto parent hired financial advisers to evaluate "strategic alternatives" for the U.S. money manager. At that time Sun Life said the process was part of a routine review of its divisions, but most observers saw this as the prelude to a sale. Mellon Financial Corp. and Wachovia Corp. were rumored to be among the bidders.
In November, Sun Life announced that it planned to keep MFS, and that it had committed capital to allow the unit to add products and increase distribution.
Mr. Manning said that with the strategic review behind it, MFS has been able to "reaccelerate" over the past six months.
"In the fall, when all of that stuff hit, we were in a holding pattern, and no one wanted to commit to us, because no one knew what was going to happen with us," he said. "This year we've seen a dramatic increase in clients, both retail and institutional, because now they are a lot more comfortable with our long-term future."
Burton Greenwald, a Philadelphia analyst with B.J. Greenwald Associates, said the fact that Sun Life was not willing to sell the unit outright turned off a lot of potential acquirers.
"MFS has had a long and, for the most part, positive image in the industry," Mr. Greenwald said. "They stumbled along the way in the past couple of years, but overall they are highly regarded and were an attractive franchise to acquire. I don't think their brand has been damaged beyond repair."
Mr. Manning said strong investment performance has improved retail inflows. He said 90% of MFS' domestic equity funds are in the top quartile as ranked by Lipper Inc.; four months ago only 50% to 60% were in the top quartile.
MFS is expanding the types of products it offers to include more value, fixed-income, total return, and asset allocation funds, he said, and it is interested in introducing more international funds.
The improved performance has also helped MFS develop its institutional business. Today half of its assets are managed for institutional investors, Mr. Manning said; a decade ago 85% to 90% of assets were managed for retail investors.
The institutional business "is really scaling up," he said. "We are gathering mandates from all over the world."
To accelerate growth, MFS will consider adopting more funds and making acquisitions. In January it adopted a sector rotational fund from Valley Forge Capital Advisors Inc. The fund, which the Malvern, Pa., investment manager launched in 2000, had accumulated $12 million of assets before the acquisition, but over the past five months it has accumulated $113 million more, Mr. Manning said.
MFS is interested is adopting funds that have an established track record in sectors where it is lacking a product, he said. "Clearly, we are interested in adopting funds in the alternative space in outcome-oriented or real return sectors. If someone has a skill set to package a product that can allow us to augment our lineup, then we are interested."
His unit also is interested in acquiring larger chunks of assets. Last month it bought seven closed-end fixed-income funds with $1.2 billion of assets under management from Columbia Management Advisors LLC, Bank of America Corp.'s asset management arm.
Mr. Manning said these products gave MFS its first leveraged municipal closed-end fixed-income funds and increased its closed-end fund business by 60%.
MFS has invested a lot of time and money into improving its reputation, performance, and distribution over the past several years, Mr. Manning said. It plans to spend $10 million over each of the next two years on a new ad campaign.
"I think there is a real spotlight on this industry right now, and companies like ours that are under the spotlight are marshalling a lot of resources to make sure the infrastructure is in place, so that we don't receive any more bad attention," he said.
