AMG CEO on Parnassus Deal: ‘Active Management Is Almost Synonymous With ESG’

Affiliated Managers Group is taking a majority stake in Parnassus, one of the largest and longest running ESG managers in the U.S.

(Mikael Sjoberg/Bloomberg)

(Mikael Sjoberg/Bloomberg)

Affiliated Managers Group and Parnassus Investments — the largest U.S. asset manager focused purely on environmental, social, and governance — have been talking about a potential deal for 10 years. This month the two reached an agreement.

AMG has taken a majority stake in Parnassus, which has $47 billion in assets and is one of the longest running U.S. firms in ESG. The active manager was founded in San Francisco in 1984. More than 95 percent of its mutual fund assets are in strategies with a Morningstar Rating of 4 or 5 stars.

Once the deal closes, Parnassus will remain independent and employees will have more equity in the firm.

Jay Horgen, president and CEO of AMG, told II that AMG is taking a majority stake, “but the business stays independent. More equity has been made available to partners at Parnassus by number and quantum.” Parnassus is AMG’s third affiliate manager focused exclusively on ESG and represents the third largest deal ever for AMG as measured by EBITDA (earnings before interest, taxes, depreciation, and amortization). Horgen, who was appointed CEO in 2019, said Parnassus is the seventh deal engineered by the current management team.

Parnassus CEO Benjamin Allen —who joined the firm in 2005 as an analyst after interning the year before — said he met former AMG chief Sean Healey 11 years ago and stayed in touch with executives at the firm ever since. Allen said Parnassus’s plans for succession kicked off “in earnest” about 5 years ago when the firm’s founder, Jerome Dodson, asked Allen to become president of the company. At the time, Dodson told Allen that everybody needed to think long term about the founder’s ownership stake and how that would work once he fully retired, which happened at the end of last year.

Allen stressed that investors in ESG are even more focused than others on solid succession plans and key employees owning a piece of the business. He said that when he joined Parnassus, the firm had $1.3 billion in assets and ESG wasn’t the sure bet that it is today. At the time, he said his former colleagues laughed at him for joining a firm that did what was then called SRI, or socially responsible investing. “It’s important to note that even in 2005, it wasn’t a foregone conclusion that SRI would be a popular way to invest,” he said.

Horgen said more equity would be made available to senior portfolio managers as well as some junior portfolio managers and operating people. In addition, Allen and Todd Ahlsten, the CIO, have signed 10-year employment contracts. “Clients see this as more stability than before,” Horgen said. “Those hadn’t been in place before.”

Parnassus can also decide to take advantage of AMG’s services including conferences and roundtables, consulting services, distribution, compliance, and a retail franchise under the AMG Funds brand.

Allen said two areas of potential expansion are distribution through the wirehouse channel as well as international. The firm now has only 5 percent of its business in Europe.

AMG is betting that ESG will ultimately be dominated by active managers. “We believe that active management will take the leading role in ESG.” Horgen said that’s because there’s not enough historical and other data on ESG to successfully backtest quantitative and other models of investing.

“Active management is almost synonymous with ESG,” he said.