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THE BUY SIDE - Out of the Limelight

Two buyouts could portend more money management deals

Talk about noncorrelated investment approaches: In a year when Fortress Investment Group and Blackstone Group are going public, a pair of traditional fund companies are heading in the opposite direction. On June 14, Thomas Marsico said he would buy back his $94 billion-in-assets growth shop, Marsico Capital Management, from Bank of America. Just five days later, Nuveen Investments, which manages $166 billion, announced that it would be taken private in a $5.75 billion buyout led by Chicago-based private equity firm Madison Dearborn Partners. The moves fueled speculation that more asset management deals could be in the offing.

Marsico, who sold his Denver-based firm to Bank of America for $1.1 billion in a two-step transaction that concluded in January 2001 — just as the bear market was unfolding — hasn’t lost his keen sense of timing. He is buying it back just as his specialty, growth-stock investing, appears to be cycling into favor. The deal is being financed with credit from Goldman, Sachs & Co.

“The strength of the debt markets worked in our favor,” says Marsico, who declined to disclose the terms of his purchase.

He will own a bigger and stronger money manager. Thanks to the extra distribution muscle, Marsico Capital Management added $82 billion in assets while under the BofA tent. And performance has been strong, with all four of Marsico’s Morningstar-rated mutual funds earning high marks.

Marsico doesn’t anticipate any big shakeups at the firm. He will continue to manage money for Bank of America, including institutional and subadvisory mandates for Harbor Capital Advisors and ING Group.

“We operated independently as it was,” he says. “That’s not going to change.”

Keith Banks, president of Columbia Management, Bank of America’s money management unit, says that despite the sale BofA CEO Kenneth Lewis is committed to growing asset management. “Ken has said that he wants to see this business thrive and be a bigger part of BofA,” he says.

Investment bankers surmise that Marsico had the upper hand in negotiations. “It was probably a case of ‘Give me back my house or I’ll set it on fire,’” says one veteran banker.

Unlike Marsico, closed-end fund specialist Nuveen is not going it alone. Madison Dearborn, in its first foray into asset management, is paying $65 a share for the Chicago firm, a 20 percent premium to the stock price when the deal was announced (terms weren’t disclosed). John Amboian, Nuveen’s CEO, says going private will enable the money manager to expand in key markets — including institutional, where the firm is on the prowl for acquisitions — without public scrutiny of its profit margins. Amboian stresses that there is little need for an asset manager to be publicly held anyway.

“Our industry’s primary asset is people,” he says. “There is little need to fund long-term capital or infrastructure.”

The Marsico and Nuveen deals, though different, enable both firms to pursue a common objective: to put more equity into the hands of key employees. Ben Phillips, managing director of New York investment bank Putnam Lovell NBF Securities, says investors increasingly prefer that their managers own stakes in the firms where they work. “There’s no guarantee you will get better performance with equity incentives,” he says. “But it’s a way to measure how much motivation they have to create alpha.”