Private equity firms GTCR and Reverence Capital are acquiring Wells Fargo Asset Management, freeing it from its bank parent Wells Fargo.
The $2.1 billion price tag for WFAM, which has $603 billion in assets, makes it one of the largest asset management deals ever and the largest private equity acquisition in the industry in 20 years. Wells Fargo, which will maintain a 9.9 percent stake and will remain a client and distributor, said it put the manager up for sale so it could focus on wealth management.
Nico Marais, the current CEO of WFAM who joined from Schroders in 2017, will stay in the role of chief executive, while Joe Sullivan, the former chairman and CEO of Legg Mason, will join as executive chairman of the board. Some executives of WFAM will have equity in the new organization for the first time.
“I am excited about the next chapter for WFAM,” Marais said in an email to Institutional Investor. “Alongside our new partners, we are aligned on our strategy and vision. And with the agility that comes with being a private firm, we will pursue our objective of being recognized as a pre-eminent solutions-driven asset management firm.”
When the deal closes in the second half of the year, WFAM will be untethered from the bank — which is good news for the asset manager, according to Donald Putnam, managing partner of investment and advisory firm Grail Partners.
“A bank culture is death to portfolio management for many reasons including the need for consensus in a contrarian business, compensation issues, autonomy versus compliance, and the inevitable collision between personal brand and institutional brand,” said Putnam, a former investment broker. “Being free of the bank will unlock about four hours a day of productivity for every executive – time freed up by eschewing the politics and the processes that are part and parcel of the bank ethos. This will benefit not only clients and the talent, it will cause a one-time leap in productivity that will reward the owners.”
Banks and insurance companies have a long history of owning asset managers. Banks, in particular, have made bets that the steady fee revenue would balance more cyclical bank profits. But it hasn’t always worked out as planned. Investors often gravitate to firms that are solely dedicated to asset management, and during the global financial crisis, multiple banks sold their managers to raise cash. BlackRock’s purchase of Barclays Global Investors in 2009 from Barclays turned it into the world’s largest asset manager.
WFAM has also faced other issues with the bank. Even though WFAM was not accused of any wrongdoing, some investors had to review their strategies and business with the asset manager when its parent Wells Fargo was under investigation for its credit card marketing practices and other activities.
One asset management CEO said even $600 billion in assets doesn’t give WFAM the scale advantages it needs to better compete and invest in needed capabilities.
WFAM’s new private equity owners plan to invest significant growth capital into the firm and insist the deal isn’t about cuts.
“We and GTCR are allocating significant capital to build out the technology, distribution, products, and, as necessary, do acquisitions. This is not an exercise in cost savings,” said Milton Berlinski, co-founder of Reverence Capital and a 26-year veteran of Goldman Sachs, where he started the firm’s financial institutions group.
Among the growth initiatives will be building out distribution. Under Wells Fargo a significant portion of distribution was through captive Wells Fargo advisors.
“Under Reverence Capital and GTCR’s ownership, WFAM will be an independent asset manager,” Berliniski said. “This should allow us to access more distribution channels than as a captive.”
He added that he expected WFAM to have more than $1 trillion in assets in five years.
According to Berlinski, private equity firms have a good track record in asset management, especially those with a history in the industry.
“Over time, firms owned by private equity have done very well, particularly those private equity people who are not tourists in this space,” he said. “That means people who really understand the industry as opposed to doing a one-off transaction.”