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Are Money Management IPOs Heating Up?


Although only two asset management firms have come to market with initial public offerings (IPOs) this year, the fact that there have been any at all has triggered speculation that investment management IPOs may slowly be coming back into vogue.

Those recently seeking to raise capital through a public offering include Cohen & Steers of New York, and Calamos Asset Management of Naperville, Ill. While not an investment manager on its own, Morningstar, the independent mutual fund and stock research and data provider in Chicago, is also hoping to tap the capital markets and raise cash.

Will other asset managers seek to tap the capital markets by way of their own public offering of shares? The conclusion among analysts is divided. While some believe IPO activity will spike, many aren't betting on an IPO tsunami to flood the investment management world.

Spurred by a confluence of issues, including the mutual fund scandal, the IPO market could be heating up, concludes a recent report from Putnam Lovell NBF Securities. According to the report, "The Age of Scandal," this year will feature significant merger and acquisition activity, as well as IPOs. Putnam Lovell expects a "global resurgence in money management IPOs."

Robert Hansen, an equity analyst with Standard and Poor's of New York, said he doesn't foresee this as a trend, per se. However, because a number of asset management companies have done well in recent years, particularly those focusing on investment niches, he foresees select IPOs by specialty investment firms.

But not everyone is so optimistic. "I think there is going to be a limited amount of asset managers coming to market because there isn't enough sizzle with these companies," said David Menlow, president and founder of IPOfinancial.com, a research firm in Milburn, N.J.

With an exception or two, asset managers haven't had the stomach for staging IPOs in recent years. The last flurry of IPOs within the industry took place in the late 1990s. Instead, fund companies seeking a fresh infusion of greenbacks in the past few years have largely agreed to be acquired or even "adopted" by other, usually larger, private or publicly traded companies, many European-based. In adoptions, fund managers agree to let another company become the fund advisor, while they continue to manage assets as fund sub-advisor.

The IPO Scorecard

So far, the flurry of 2004 activity appears to be centered among mid-sized investment management firms. The sole anomaly is General Electric's spinoff of Genworth Financial, which includes GE's insurance, mortgage, asset management and annuity businesses. Genworth netted a cool $2.83 billion when its newly listed stock began trading in late May of this year. Genworth was the second-largest IPO within the past 12 months, second only to China Life International's IPO, according to Renaissance Capital of Greenwich, Conn., the proprietor of the www.ipohome.com Web site and investment advisor to the seven-year-old, $21 million IPO Plus Fund.

In March, Cohen & Steers, which manages $15.1 billion and is the largest manager of real estate mutual funds in the U.S., registered to publicly offer 7.5 million shares. The firm began publicly trading Aug. 13 and raised $97.5 million. Martin Cohen and Robert Steers founded the firm in 1986 after having successfully parlayed their real estate mutual fund investment prowess at another firm.

According to the company's registration documents, the proceeds will be used to expand product offerings and distribution. The firm will also use $3.3 million later this year to acquire a 50% equity stake in real estate manager Houlihan Rovers SA of Brussels, Belgium. The firm specializes in European real estate markets.

Cohen & Steers has also been diversifying, adding a utilities fund as well as fixed-income products to its narrowly focused real estate fund offerings.

Morningstar Reaches Out

This past May, Morningstar filed for its maiden voyage into the capital markets. Morningstar has become a household name to mutual fund investors and mutual fund companies alike since its founding in 1984 by its Chairman and CEO Joe Mansueto.

According to its red herring filing, Morningstar provides data to three million individual investors, 100,000 financial advisers and 500 institutional clients, including fund groups. In 2003, its largest database product, Principia, accounted for almost 21% of the firm's revenues, with Morningstar licensed data accounting for 16.1% of revenues, and its proprietary Web site, Morningstar.com, accounting for 11.7%.

Morningstar intends to use its IPO proceeds to fund general operations and facilitate future access to capital markets, according to the registration filing. It will also consider acquisitions and joint ventures. And it expects to focus more on its equity analysis by hiring an additional 20 analysts. Since April 2003, the firm has doubled its stock analyst staff from 24 to 48.

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