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Rating:How the Romance Began: a Tale of Two Subadvised Shops Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, May 15, 2015

How the Romance Began: a Tale of Two Subadvised Shops

Reported by Neil Anderson, Managing Editor

Next quarter two subadvised mutual fund shops from opposite coasts are slated to join forces, and it's all thanks to a common subadvisor.

This week American Independence Financial Services [profile] managing partner John Pileggi and FolioMetrix [profile] president and CEO Jerry Murphey unveiled a deal to merge their two firms under the RiskX Investments name. When Murphey and Pileggi tell the tale of their two firms that came together, it starts with Louis Navellier. Navellier's eponymous firm subadvises funds for both shops.

Navellier, Pileggi says, told him that he needed to meet the FolioMetrix folks. And Murphey heard the same about American Independence from Navellier & Associates, too. The American Independence and FolioMetrix folks then met for the first time last summer.

"That's how the romance began," Pileggi tells MFWire.

That introduction, the way Murphey and Pileggi tell it, was star-crossed. On the FolioMetrix side, Murphey got private equity backing last year from asset management M&A specialist Grail Partners, and Murphey was on the hunt for deals.

"We developed the research that created the investment products. We were just stepping out to build out our distribution and administration," Murphey tells MFWire. "Everything that's at American Independence is what we were getting ready to build."

"To build this kind of innovation, we really needed to do it with fresh-thinking people," Murphey adds.

On the American Independence side, Pileggi says, they had traditionally offered single-manager subadvised mutual funds. Yet he was looking to build out offerings by working with multiple managers in a fund and with ETF strategists, which he characterizes as "skating to where the puck is going" a la hockey legend Wayne Gretzky.

"We needed to have a significant stake in that market," Pileggi says. "Building that one at a time was probably going to take a great deal of time."

And then he met Murphey and the FolioMetrix team, whose products feature a host of different tactically managed strategies from different managers.

"It gives them an important research component that you can't build over night," Murphey says.

The initial American Independence and FolioMetrix meetings didn't instantly turn into merger talk, though. Then Don Putnam, managing partner at Grail Partners, stepped in.

"We had approached Don Putnam and Grail about helping us with some funding," Pileggi says. "We were spending a great deal of money self-financing C shares and other expenses. We wanted a funding partner."

Putnam then offered to introduce Pileggi to Murphey, and vice versa. With the help of Grail, and another outside investor whose identity both sides are keeping under wraps, the deal came together. It was kismet, in Pileggi's words.

"We are delighted that Don Putnam and Grail are involved," Pileggi says. "They are preeminent, and they're magnificent partners."

The core idea that will drive the combined firm, Murphey and Pileggi say, is risk management, hence the decision to use FolioMetrix's RiskX funds brand as the brand for the combined firm.

"What's missing in the industry is an understanding of risk management," Murphey says. "We need to bring more meaning and understanding of what active risk management is."

"We have a great product suite between the two firms," Pileggi says. "We are putting the distribution operation together."

Going forward, RiskX will still maintain two mutual fund brands: FolioMetrix's funds will become the Rx Funds, while American Independence's funds will keep their brand.

"We're in the process of going through a rationalization now," Pileggi says.

If all goes according to plan, the deal will close in September. 

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