Investment manager Russell Investments has reportedly hit the auction block just three years after it was acquired by private equity firms TA Associates and Reverence Capital Partners.
While the Financial Times reported Tuesday that the two have hired Goldman Sachs to explore a sale of the $293 billion asset manager, it remains uncertain who could scoop up the firm.
In a telephone interview with Institutional Investor, Fitch analysts Nathan Flanders, global head of non-bank financial institutions, and Evgeny Konovalov, director of financial institutions, took a stab at predicting what’s next for the firm.
A strategic buyer would likely make the most sense for Russell, according to Konovalov, particularly one looking for a multi-asset strategy.
“I would not rule out the potential for another private equity owner, but they’d likely already have another portfolio company with asset management capability,” said Konovalov.
Back in 2016, TA and Reverence acquired Russell for $1.15 billion. Since the acquisition, Russell’s management team was overhauled: its global chief investment officer, chief operating officer, and chief executive officer were replaced between 2017 and 2018.
“Russell had a relatively good first quarter, but the general trend since then has been toward minor outflows,” Konovalov said, noting that this could affect its valuation.
“It’s only been about three years since Russell was acquired,” Flanders added. “Normally the investment horizon for private equity is somewhere in the five- to ten-year range depending on how the investment is performing,” said Flanders.
He added that because TA and Reverence are looking at selling Russell earlier in the range, they’re likely expecting a positive return on their investment. TA, Reverence, and Russell did not return phone calls seeking comment.
Deal activity in the industry could provide some clues on the M&A environment Russell Investments is facing. Third-quarter data from PricewaterhouseCoopers showed that deal activity in the asset and wealth management sector is on track to set a record in 2019.
“Three forces have been spurring consolidation: fee pressure, slowing growth in assets under management, and the persistent shift from active to passive investing,” according to PwC’s third-quarter report.
But deals aren’t raking in the big bucks like they were previously. According to PwC, total disclosed deal value during the quarter plummeted 90 percent year-over-year. This was as the number of deals increased by 30 percent year-over-year.