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Rating:Needles Sticks With His American Beacon Growth Plans, Under New PE Ownership Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, May 5, 2015

Needles Sticks With His American Beacon Growth Plans, Under New PE Ownership

Reported by Neil Anderson, Managing Editor

Gene Needles and his team just said goodbye to a pair of American Beacon's [profile] private equity owners and said hello to another such pair. Yet Needles and his leadership team are staying put to continue their growth plans.

"The headline is business as usual," Needles, president and CEO of the Irving, Texas-based manager of managers, tells MFWire. "Nothing about the team, the direction, nor the focus has changed."

New York City-based Kelso & Company and Phoenix-based Estancia Capital Management closed on their purchase of American Beacon's Lighthouse Holdings parent last week, after unveiling the deal in November. Lighthouse had been backed by another pair of private equity firms, Pharos Capital Group and giant TPG Capital, both in the Dallas-Fort Worth area of Texas like American Beacon and its original parent, American Airlines (still a key American Beacon client). News of the sale, with an estimated price tag of $600 million or more, broke in September.

"We really changed one set of financial owners to another set of financial owners," Needles says. "They [the team at Kelso and Estancia] bought into our vision of the company and remain very supportive, not only directionally but also financially, in terms of helping us grow this business."

In terms of growth, Needles continues to hunt for what he calls "under-distributed excellence" in investment management. When he finds asset managers that fit that bill, American Beacon can create new mutual funds subadvised by those managers, adopt existing mutual funds, or even acquire managers. Yet Needles stresses that American Beacon's organic growth is solid, with EBITDA rising about 25 percent annually over the last several years and what he describes as "rank very favorably for net flows vis-a-vis the industry." This year American Beacon's internal sales force is expanding by six, and Needles also plans to "be moving more aggressively into the liquid alt space."

"We don't need acquisitions to grow, but it's something that we've looked at continually since I joined six years ago," Needles says. "We're very picky on the acquisition front. We've looked at well over 100 different opportunities and we haven't done one [acquisition] yet."

Private equity firms traditionally like to invest in companies where management has a stake in their company's future, too, and Needles confirms that the senior leadership team of American Beacon has a substantial stake in the company under the new ownership structure. Per American Beacon Advisors' most recent mutual fund disclosures with the SEC, American Beacon is technically wholly-owned by Astro AB Borrower, which is wholly-owned by Astro AB Acquisition, Inc., which is wholly-owned by the newly-created Astro AB Holdings, LLC. And Astro AB Holdings is owned primarily by Estancia and Kelso's private equity funds (specifically by Estancia Capital Partners L.P., KEP VI, LLC and Kelso Investment Associates VIII, L.P.). And American Beacon's most recent 497 lists that third fund, Kelso Investment Associates VIII, as a "controlling person/entity" of American Beacon Advisors thanks its ownership stake in Astro AB Holdings.

Needles notes that American Beacon went through a "rather lengthy process" before the deal closed, so his team "got to know these two buyers pretty well."

The smaller and younger of the two PE buyers, Estancia, is a "small to lower middle market ('small buy-out')" shop focused specifically on making $5 million to $50 million investments for minority or controlling stakes in asset managers and related businesses. Its portfolio companies include Equinoxe Alternative Investment Services (a Bermuda-based fund administrator for alternative asset managers), Snowden Capital Advisors (a New York City-based hybrid RIA broker-dealer in wealth management), and Spruce Private Investors (a Stamford, Connecticut-based outsourced CIO to endowments, families, and foundations). It also backs Sustainable Growth Advisors (SGA), a Stamford-based, $6-billion AUM, institutional asset manager focused on growth equities that already subadvises for American Beacon, as well as other manager-of-managers mutual fund families like Edward Jones, Hancock, Russell, and SEI.

There are three partners at Estancia, including former Tradewinds Global Investors president and CEO Michael Mendez.

Takashi Moriuchi, partner at Estancia, states that American Beacon is "an exceptional investment management firm" that partners "with the 'best of the best' institutional asset managers globally."

The larger and older PE buyer, Kelso and Company, was founded in 1971 by Louis Kelso, who was so instrumental in the creation of the first Employee Stock Ownership Plans (ESOPs) that they were once known as Kelso plans. The firm moved into private equity in 1980, and it invests mainly in three sectors: energy, financial services, and healthcare. One of Kelso's current investments is in Sandler O'Neill & partners, the New York City-based, financial services-focused investment bank that advised Estancia and Kelso on the American Beacon deal.

Chris Collins, managing director at Kelso, states that American Beacon "has established itself as a premier asset management platform."

As of March 31, 2015, American Beacon's assets under management reached $62.9 billion, and Morningstar estimates that American Beacon's mutual funds (money market funds excluded) held $30.211 billion as of April 30, 2015. It works with 36 subadvisors. 

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