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Tuesday, August 22, 2017

American Century Preps a Pair of Acquisitions

News summary by MFWire's editors

Jonathan Thomas is preparing acquisitions, two of them. And he's about to raise the cash to make those deals.
Jonathan Thomas
American Century Investments

American Century [profile] is days away from finalizing a debt offering to fund purchases of a quantitative equity shop and a fixed income shop over the next few months, the Kansas City, Missouri-based mutual fund shop's chief tells P&I. Thomas did not reveal the size of the debt offering or the identities of the planned acquisition targets, which would be the firm's first buys in more than two decades. Meanwhile, he confirms that he's slightly reducing headcount and trimming expenses.

"There is a tremendous amount of dislocation going on in the industry," Thomas tells the trade publication, pointing to historically low asset manager multiples and to small shops' distribution woes. "All of those things have combined to create an interesting opportunity for us to add scale and capabilities."

"When we find the right firms with the right products and processes and the right performance, that we believe have a cultural match, we will move quickly," Thomas states. He mentions an internal search committee but not any specific investment banking support.

American Century is no stranger to quantitative equity or to fixed income. Indeed, P&I notes, American Century already has a ten-person, Mountain View, California-based team managing $15 billion in quantitative equity strategies and has more than $40 billion in fixed income AUM. (Thomas says he wants to buy a fixed income shop with up to $25 billion in AUM.) American Century has about $168 billion in total AUM.

Investment bankers and analysts weigh in with P&I on the deal talk. Aaron Dorr, principal and head of asset management at Sandler O'Neill Partners, worries that quant and fixed income shops are hot commodities in asset manager M&A right now. And Don Putnam, managing director of Grail Partners, says that quant shops to buy are few and far between and "very hard to buy," though he thinks buying a fixed income shop is more doable. Gretchen Rupp of Morningstar worries about American Century's lack of recent acquisition experience, calling dealmaking both potentially reinvigorating and potentially culturally upsetting.

Thomas' acquisition talk comes less than two months after multiasset strategies and disciplined (i.e. quantitative) equity chief investment officer Scott Wittman left American Century. The moves also come about a year after Nomura closed after its $1-billion purchase of a 41-percent stake in American Century, after which American Century kicked off a new brand campaign. The Stowers Institute for Medical Research owns 44 percent of American Century, and employees own the other 15 percent.

Meanwhile, Thomas tells the trade pub, over the next year American Century is cutting $55 million in expenses and cutting headcount (currently 1,300) by 30 to 40. He points to investor pressure to cut fees, combined with a desire to preserve margins. 

Edited by: Neil Anderson, Managing Editor

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