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Thursday, February 26, 2015

What's Next After Salient Buys Forward?

Reported by Neil Anderson, Managing Editor

A private equity-backed alternative asset manager in Texas is buying a West Coast-based mutual fund shop, and it's not rushing to do any other deals just yet.

Earlier this month Houston-based Salient Partners [profile] unveiled a deal to buy San Francisco-based Forward Management [profile] for an undisclosed sum. The deal is slated to close by the end of the second quarter. Together the two shops work with more than $27 billion in assets under management.

Lee Partridge, chief investment officer of Salient, tells MFWire that the shop is "pretty selective" about acquisitions.

"We've done a couple of smaller acquisitions in the past," Partridge says. "This is certainly the most significant one we've ever undertaken."

Salient's management team owns about two-thirds of the firm, while Boston-based private equity giant Summit Partners owns about a third of Salient and has backed the firm since 2010. Summit, which has raised more than $16 billion in the past 31 years, also backs Luxembourg-based fund accounting and transfer agency software shop Multifonds and RIA acquirer Focus Financial Partners. Summit also previously backed the Mutual Fund Store and optionsXpress.

Summit gives Salient access to more dry powder, yet don't expect them to acquire again too soon. Partidge expects a "year-long or 18-month-long transition" with the Forward deal.

"Our focus is going to be solely on digesting this merger," Partridge says. "I would not preclude the possibility of doing other transactions if something else comes along."

Salient chairman and CEO John Blaisdell will remain CEO of the combined firm, and Partridge will be the combined firm's CIO. Forward chief operating officer Rob Naka will become COO of the combined company.

Combined, Salient and Forward have more than 250 employees in Houston, New York, and San Francisco. Partridge confirms that they "will have a combined total of about 50 people in the field" and about 55 people "on the investment side." He praises Forward for having "best in class" PMs who are "doing interesting work in niche markets."

"It all starts with the investors and the investment process ... We have full intentions of keeping the entire investment team intact," Partridge says. "Their platform is completely complementary with our platform with virtually no overlap."

Partridge points to three key Forward teams -- real estate, dividend preferred, and asset allocation -- as managing about $4 billion of Forward's $6 billion in assets. Forward also has a "very close relationship with one subadvisor, Broadmark," which Forward owns a "significant minority interest in." And Salient knows Broadmark well -- prior to the Forward deal, Salient had already adopted one of Broadmark's funds.

On the Salient side, about $13 billion of its $21 billion in AUM is institutional money. $4 billion is in its trust and advisory business, and about $4 billion is in its mutual funds and separately managed accounts for individuals, of which $1.7 billion is in mutual funds. And Salient also has some 40 Act registered closed-end funds.

All told, when the Forward deal is done, Partridge says Salient will have nearly $10 billion in 40 Act registered assets. They'll have 37 mutual funds, though Partridge says they might "combine some of the existing offerings."

As for the two firms' brands, you don't have to say goodbye to Salient or Forward, at least for now. Long-term, he says, the Salient team "will have to make a decision" about branding, but not yet.

"We're going to keep the brands of both fund platforms the same," Partridge says. "We recognize that we've got two great brands on our hands."

"This is about scale, complementary platforms and positioning for growth," Patridge concludes. "We're really excited about the transaction." 

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