Frank Russell would be turning in his grave. Private equity owner TA Associates has hired Goldman Sachs to explore a sale of Russell Investments, putting the US$400 billion-odd asset manager and former global asset consultancy on the block, again, according to London’s Financial Times.
The newspaper said last week: “A sale of the money manager follows several bruising years for the industry, with profits at some of the biggest fund houses squeezed by the rise of passive investing. Shares in listed asset managers have trailed the benchmark US stock index, the S&P 500, over the past five years.”
Russell Investments, which still has some advisory clients outside of Australasia, was last valued at US$1.15 billion in 2016 when TA Associates acquired the group from the London Stock Exchange, which kept the Russell Indices business. It is unclear how much TA is seeking for the Russell, which claims to have invented the first ‘smart beta’ strategies with the creation of small-cap, growth and value investing funds more than three decades ago and runs multi-asset, equity, fixed income and alternative funds.
The firm launched Australia’s first and only style indices, with the ASX, in the 1990s, but later closed them due to a general lack of interest from investors. It has retained a highly regarded investment implementation offering, run for the Asia Pacific region out of Tokyo.
The FT newspaper says deal-making has been concentrated this year between smaller fund managers that have sought to unite to build scale and fend-off larger rivals. Seattle-based Russell brought in Michelle Seitz as chief executive two years ago from William Blair Investment Management.
“She has since focused on controlling costs. The asset manager also operates a large investment outsourcing unit that works with companies and non-profit organisations to structure their retirement and investment programme portfolios, conduct due diligence on money managers and assist with compliance” the FT said.
The tale of Russell is interesting because it reflects the difference between family and/or staff-owned businesses and those owned by public companies or other big institutions which may not have such as interests as the core of their operations.
Russell Investments was a family company for many years, founded by Frank Russell, a stockbroker, in Tacoma, Washington State, in 1936 and later run by his son George, who is retired from business. The family sold down its holdings to an American insurance company, Northwestern Mutual, in 1998. George set up offices in London, followed by Tokyo and Sydney, in 1986. That was a big year in Australia: it was the year that Award Super got started, as the precursor to the Superannuation Guarantee. This marked the start of the modern era of superannuation. Russell and Towers Perrin became the first asset consultants to grace these shores.
A young up-and-comer, Craig Ueland, was sent from Tacoma to launch Russell’s Australian business. Westpac was its first client and MLC became one of its longest-standing and biggest. He eventually went on to be global chief executive. In semi-retirement he returned to Sydney with his family and is currently a director and chair of the investment committee at Perpetual Ltd. In another Australian connection, Pete Gunning, who runs the Australasian business, also did a stint as global CIO at the new headquarters in Seattle.
Ueland recalls that the main catalysts for setting up in Australia were the floating of the Australian dollar and the decision to allow super funds to be able invest offshore uninhibited. This lead to a surge in demand for international strategy and manager selection advice.
TA Associates, which specialises in management buyouts, has taken part in more than 20 deals involving asset managers, including DNCA of France, Söderberg Partners of Sweden and Jupiter Fund Management in the UK. Two years ago, it paid UK£600 million to acquire a majority stake in Old Mutual Global Investors in a management buyout spearheaded by the UK fund manager Richard Buxton.
The private equity firm also took a 25 per cent stake in the Auckland-based Fisher Funds business in 2017, upping its share to about a third the following year.
Greg Bright is publisher of Investor Strategy News (Australia)