president Steve Graziano
wants to double his firm's assets under management to $30 billion in three years — and he does't believe that to be an aggressive goal at all.
"That is not as ambitious as it sounds," the Touchstone president told MFWire
today. "In 2011, we were only around $7.5 billion, today we are over $15 billion."
Graziano outlined a "conservative" growth model by which his firm could achieve this goal. Noting that his firm experienced 60 percent annual sales growth during each of the past three years, he expected that Touchstone could achieve at least 30 percent this year. "I bet we'll exceed that," he said.
He then assumed roughly 25 percent sales growth the next year; around 20 percent the year after and then 15 percent the following year. Also assuming about 6 percent market growth each year, then the path from $15 billion in current to assets to over $30 billion is quite possible, he said.
Here's how he intends to achieve that growth.
"Yes, of course we are opportunistic acquirers," Graziano said.
For Graziano, acquisitions are more about gaining scale than about finding new products. For example, when Touchstone completed the acquisition of 16 Fifth Third funds in September
, Touchstone merged away all but four of the funds.
"We were able to get scale in several strategies," he said. "Then we picked up a few very good funds."
This attitude towards aggressive culling and reorganization is apparent from the Spring cleaning
the firm announced Monday for its fund lineup, which included the reorganization of two funds, the liquidation of six others and new sub advisors for yet another two funds.
Graziano says that every fund, unless it meets a very particular strategic need, must have the wherewithal to reach between $300 million and $500 million in a three-year period. If the fund doesn't reach that milestone, and doesn't fill a specific product need, then the fund gets reorganized.
"Every year, we step back and look at our funds and ask ourselves, does the value proposition still hold on this fund?" He said.
In the quest to generate scale, Graziano said, he looks for "thriving concerns," preferably doing well in both the retail and institutional channels, with funds that overlap "considerably" with Touchstone's product lineup.
The acquisition immediately increases his firm's AUM, but it also provides Touchstone with additional distribution resources to grow organically.
Graziano said that there were a number of "ideal targets" that fit these needs, including the fund management arms of a number of banks which, although doing well, don't fit perfectly within the parent banks business model.
Not all of the acquisitions are merged with other funds, of course. Graziano notes that acquisitions often generate a few gems like Fifth Third's strategic income fund. Graziano then focuses on adding scale to these gems, another of which is a large cap value fund sub-advised by Barrow, Hanley
, to help them get onto the screens of 401(k) gatekeepers.
"Acquisitions help us add scale to these high quality funds, so they become more viable," he said.
Touchstone sells most of its funds through professional buyers, family trust departments, large RIAs and retail financial advisors. Hence, the importance of adding assets to selected funds.
Right now, Touchstone has 21 retail wholesalers, supported by 15 internal people. This team focuses primarily on financial advisors. The firm's institutional team consists of six people: four externals, one internal and an RFP person.
Graziano says that by next year, his firm might increase the total sales force by three to five more.
"We are expanding in a very measured way. We are not growing speculatively," he said. "When we an opportunity or territory that needs more attention, then we devote more resources to it."
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