Touchstone's Two-fer: It Buys and Builds Its Assets
April 16, 2012
Some firms grow organically, pumping out funds. Then, they hire reps and distributors to market and sell their offerings.
Other firms buy assets rather than build them up.
Then there is Touchstone Investments, whose name means a standard by which something is judged. The Cincinnati-based firm is trying to do both.
Just five months after agreeing to buy assets of Old Mutual Asset Management from the firm's U.S. mutual fund business, Touchstone last week said that it is acquiring the assets of 16 mutual funds from Fifth Third Bancorp, totaling $3 billion.
The deal is expected to close some time in September 2012 and increase Touchstone's assets under management to $13 billion. This is pending the closing of Touchstone's Old Mutual deal this month, as well.
"It's been a long and steady relationship," said Steven M. Graziano, president of Touchstone. "They wanted to exit the mutual fund business but not the asset management business and we won the deal because they would be an important distribution partner for us."
Before the two acquisitions, Touchstone's assets under management were $7.5 billion in November 2005.
The latest deal will also create new sub-advisory relationships with FTAM. Fifth Third will be retained as sub-advisor for the Strategic Income Fund and Micro Cap Fund.
Touchstone also acquired the assets of Constellation Investment in November 2005.
3 for 3
Graziano noted that the third deal, with Fifth Third, is perfect from the firm's perspective. "It added assets to existing funds, four new funds to add to lineup and a robust distribution partner."
He said his firm is "excited to participate" in Fifth Third's 401(k) and retail banking distribution platforms.
With three deals under its belt, is Touchstone looking to grow through more deals?
Not so fast, according to Graziano. "These acquisitions are a means to an end - our plan is to grow organically and the scale we gain from acquisitions helps bring our funds to a size that enables us to sell through our broker-dealer distributors, where the funds have to have a minimum AUM of $50 million" he said.
However, watch for Touchstone to do more deals because the firm's parent, Western & Southern, is an "old, conservative, Midwest" mutual life insurance concern, and sports a strong balance sheet, according to Graziano.
"We have cash for additional acquisitions but we are not in search of another acquisition. We will be opportunistic," said Graziano.
Building Out Products & People
Going forward, Graziano said the firm is looking to add to its current lineup of alternative mutual funds, which includes a market-neutral fund, a merger arbitrage fund and a global real estate fund.
"We're in search of other alternative funds such as global macro and commodities." In fixed income, the firm is looking to add a floating rate fund and an emerging market debt fund.
The firm also is looking to build out its defined contribution investment-only team, adding another seven wholesalers focusing on retirement plans, endowments and pension funds.
The firm is also ramping up its internal wholesale team from 10 to 12 and is looking to add two to three new sales territories per year, according to Graziano. "We're examining opportunities in Florida and there are opportunities to add two more in southern California."
Laying the Groundwork
So what's next for the Pioneer veteran who assumed responsibility for Pioneer Funds Distributor Inc., a 250-person fund distribution company, when former head of sales Kevin Rowell left?
For the immediate future, Graziano said the firm's gameplan is to boost its AUM to $15 billion by year-end.
"When I joined Touchstone in 2009 it was clear that Touchstone's value proposition is unique - hiring institutional sub-advisors expert in their respective asset categories - and is 'right for the time' but that we needed to focus our energies on execution," he said.
"Our five-year plan was to grow our assets from $5 billion to $20 billion by focusing our efforts on those distribution partners,'' such as Morgan Stanley Smith Barney and UBS, he said, "with which we have the opportunity and product set to become a top-10 selling firm.''