One hundred and ninety years after Napoleon suffered a crushing defeat on the Russian steppes, the bank that made a fortune from the French general’s humiliation by buying Russian bonds is staging an inglorious retreat of its own. Rothschild Group has put its £13 billion-in-assets ($20 billion) institutional and retail asset management business -- Rothschild Asset Management -- on the block and says it wants to concentrate on its investment banking business and build on its heritage as a private banker and investment adviser to the wealthy.
Out goes RAM’s CEO, Paul Manduca, brought in with much fanfare from Zurich Scudder Investments three years ago to build a fund management business as lustrous as the Rothschild name. Not to worry: He has already found a well-feathered refuge as European chief executive of Deutsche Asset Management. Manduca will remain at Rothschild until December to oversee the sale. Meanwhile, in comes Mike Bussey, former chief of private banking at Schroders, to head up that activity at Rothschild, starting November 1.
The firm’s decision to sell RAM has divided City opinion. In the worst bear market in a generation, with many fund managers struggling, RAM had the cachet of the Rothschild brand to fall back on. But it never reached the size to be competitive and relied too much on low-margin business (70 percent of its assets were fixed income) and fickle institutional clients (source of £12 billion of its £13 billion in assets).
Manduca’s reputation as a builder of asset management businesses -- he created well-regarded Threadneedle Asset Management, for instance, out of the fund management businesses of Allied Dunbar and Eagle Star -- remains intact. Still, as one of his RAM colleagues laments, “Manduca was hailed as a savior but hasn’t delivered much, and now he’s off, leaving us in the lurch.”
What set tongues wagging even more than the decision by Manduca’s bosses to dispose of RAM was the manner in which the firm disclosed its intentions. Bankers speculate that Rothschild was forced to go public with news of the sale after word of it leaked. Indeed, chairman Sir Evelyn de Rothschild issued a statement on RAM’s future on the very day that a London Web site, Efinancialnews.com, reported that Manduca was about to land his job at Deutsche.
“Rothschild has erred by announcing this,” contends Ray Soudah, founder of Zurich-based M&A adviser Millenium Associates. “I certainly would not have advised this course of action.”
Manduca, 50, says that the catalyst for the announcement was the sale of Rothschild’s Australian money management business to Sydney-based Westpac Banking Corp. in April. That raised $180 million. “When you have money it poses the strategic question of what to do with it,” he explains. “If you take the [£10 billion in] private client money off the table, you are left with a business managing £13 billion -- which is scarcely critical mass. ‘Should we acquire something?’ we asked. Australia prompted an either-or decision for the board, and they decided to sell rather than buy.”
Manduca insists that the announcement was in RAM’s best interests: “This sort of process is inevitably accompanied by rumors, and our clients and staff have welcomed the very transparent way that we have dealt with this. The moment the rumors start it unsettles everybody. We have been open, retention packages are in place, and everyone seems comfortable. We have even been complimented on the way we are handling this.”
Richard Morris, vice chairman of investment bank Putnam Lovell NBF, anticipates that many more money manager divestitures will be forthcoming in the months ahead. Putnam Lovell worked on two such disposals in the last week of August alone: the sale of BT Funds Management by Principal Financial Group to Westpac and the sale of Investors Group’s U.S. mutual fund business, Mackenzie Financial Corp., to Waddell & Reed. “I predicted two years ago that a good proportion of our future revenues would come from undoing the M&A of the previous five years,” says Morris. “Like a lot of owners of businesses who thought they were profitable in 2000, these markets have taught Rothschild the lesson that in money management you need very strong revenues to ride out market downturns.”
A banker close to the RAM auction says interest is healthy. A reasonable target price: $250 million to $350 million. The most likely acquirer is a large asset management consolidator strong in fixed income, such as ABN Amro, Baring Asset Management or Robeco Group, or else a U.S. bond house seeking a European presence.
