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Thursday, April 30, 2015
Will PE Help F-Squared Get Back On Its Feet?
F-Squared has stumbled. Will a private equity firm help CEO Laura Dagan get the ETF strategist back on its feet again?
Luisa Beltran of Reuters' PE Hub reports that, according to two unnamed sources, PL Advisors is helping the nine-year-old Wellesley, Massachusetts-based shop search for a buyer. A third unnamed source tells the publication that "middle market private equity firms" might be interested in F-Squared, though another source wonders how appetizing the shrinking ETF strategist would be to PE firms. No pricing figures are mentioned.
F-Squared and PL both declined to comment to PE Hub.
The deal talk comes about eight months after news broke that the SEC sent F-Squared a Wells notice over performance reporting issues around the AlphaSector indexes that drive F-Squared's flagship products. Two months later F-Squared hired Dagan to replace co-founder and then-CEO Howard Present. F-Squared subsequently agreed to a $35-million settlement with the SEC, yet Present himself (who still owns about 22 percent of the company according to the SEC settlement order in December) did not settle. PE Hub reports that new CEO Dagan "is also an investor" in F-Squared.
F-Squared, which subadvises several mutual funds for Virtus [profile], has suffered significant outflows since the scandal broke. Citing Morningstar data, PE Hub reports that F-Squared's AUM has fallen to $15.2 billion as of March 31, 2015, down about 46 percent from $28 billion in September 2014. And last month F-Squared reportedly made "an unavoidable and substantial reduction in headcount," cutting up to 25 percent of its 161-person workforce. All that translate may translate into a tough sell.
"Private equity likes to invest in firms that are growing rapidly because that is how they make a return," an unnamed banking source tells PE Hub. "Not many PE firms want to get involved in reworking a company, unless it has hard assets. In the money management business there is no such thing as hard assets."
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