Man Group could be the most suitable acquirer for Gartmore after it announced the departure of key manager Roger Guy yesterday.
Despite speculation about approaches from private equity houses and British fund managers, for Man Group Gartmore would be a sound strategic fit.
Although Man has only just completed its acquisition of fellow hedge fund manager GLG Partners, buying Gartmore could enhance that acquisition, not diminish it.
With the GLG deal, Man aimed to diversify its quantitative absolute return strategies by buying a discretionary absolute return manager, or one which fuses both quantitative and qualitative techniques.
The two firms exhibited little or no overlap, and the acquisition seems to have gone smoothly so far, with no unsettling large-scale redundancies.
Buying Gartmore would not only enable Man to consolidate its discretionary absolute return business.
It would also accelerate the development of GLG’s retail business, which began with GLG’s purchase of Societe Generale Asset Management UK early last year. (article continues below)
Any examination of the case for buying Gartmore must start with its European long/short business, which constitutes a large proportion of the firm’s revenues.
This business could prove attractive to a number of firms. Despite the departure of Guy and other key European manager Guillaume Rambourg, Gartmore hired respected manager John Bennett before the IPO to cover precisely this type of scenario.
Gartmore’s private equity co-owners Hellman and Friedman might want to take it back in-house.
Private equity rival CVC Capital Partners announced it was on the prowl for fund management assets last year. It almost bought iShares before BlackRock took over iShares’s parent company Barclays Global Investors.
Schroders has been linked to a number of auctions in the past two years and, as Bestinvest points out, its European fund has been underperforming recently.
Henderson has a respected European manager in Richard Pease and may want to add some more long/short expertise to its existing hedge fund business.
But the problem is that for all of these buyers, the case ends there.
None of them are likely to have any special way of unlocking the value in Gartmore’s retail business
None of them are likely to have any special way of unlocking the value in Gartmore’s retail business, which on the face of differs little from Schroders or Henderson’s.
On the management side, Hellman and Friedman established this value before the IPO by letting underperforming managers leave and hiring established replacements.
The hiring spree boosted Gartmore’s brand and could deliver significant results once the new managers pass their three-year track record.
The only thing Schroders or Henderson could add to this process would be to merge Gartmore’s retail funds with their own, negotiate the departures of underperforming managers and generate economies of scale.
Neither of them need Gartmore’s retail or institutional brand, or much of its fund management expertise. BlackRock, another firm with deep pockets, would find itself in an identical position.
In a people-based business like asset management, such transactions for the sake of cost-cutting alone are typically less useful, as they cause unsettling staff turnover.
The exception to the rule is Aberdeen, which has typically bought investment houses for their assets, not their people. But it has not generally bought firms with the same star manager culture as Gartmore.
Man Group is a completely different proposition.
Buying Gartmore’s European long/short business could free up GLG’s European long/short manager Pierre Lagrange and enable him to spend more time on his wider role as senior managing director.
It would also keep investors’ confidence with another big name to replace Guy and give GLG considerable assets in a high-margin area.
More broadly, Gartmore would give GLG a long-standing retail brand, compared with GLG’s, which is growing strongly but is still relatively young.
Gartmore would also hand GLG assets and managers in key retail areas, such as multi-manager, cautious managed, British equity income, British mid caps, sterling bonds and China, and in more esoteric areas, such as Latin America and Japanese long/short.
Andrew Thatcher, Richard Phillips and Richard Pursglove would probably prove a formidable trio on the retail sales side. After the deal, GLG’s British equity team would be the most flexible in the industry.
The deal would ensure maximum continuity for Gartmore and public profile for Man, which should welcome it given GLG’s retail ambitions.
If Man enters and wins the bidding for Gartmore, expect the Man Booker prize to become the Gartmore Booker prize in 2011 or 2012.