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Tuesday, January 08, 2019|
Resolute Buys Into a Pair of Fixed Income Shops
The parent of American Beacon is buying into two more boutiques, a pair of institutional fixed income shops on opposite coasts. Once these deals close, the acquisitive, private equity-backed shop will have ownership stakes (mostly majority, some minority) in seven asset managers. And they're still on the hunt.
Today Gene Needles, chairman and CEO of Resolute Investment Managers (also chairman and CEO of American Beacon), confirms that the Irving, Texas-based multi-affiliate asset management platform has agreed to buy a majority stake in Beverly Hills, California-based SSI Investment Management and a minority stake (with the ability to increase to a majority stake in time) in Summit, New Jersey-based RSW Investments. Once the deals close, both RSW and SSI will continue to operate as autonomous shops, as is Resolute's model.
Colchester Partners and Skadden, Arps, Slate, Meagher & Flom advised Resolute on the deals. Berkshire Global Advisors and Shartsis Friese advised SSI, and Park Sutton Advisors and Day Pitney advised RSW. Pricing and terms of the deals were not disclosed, though Needles notes that he was "certainly willing to put attractive valuations on the companies."
"These are both great franchises," Needles tells MFWire. "They have a lot of potential for growth."
SSI, which launched in 1973, has long focused on risk mitigation. After a prior acquisition, the firm has come to focus especially on convertible bond strategies, both long-only and hedged.
"They're just really good at what they do," Needles says of SSI. "With the help of a strategic partner, they should have a lot more assets."
Jeff Ringdahl, president and chief operating officer of Resolute, agrees that SSI "has great capacity for growth."
SSI had 37 employees as of December 31. Though most of SSI's $1.9 billion in AUM is in separate accounts, they also subadvise for firms like First Trust and Palmer Square.
"We'll create a fund with them, a mutual fund to make one or more of their strategies available for retail clients," Needles says. "We kind of feel like this is a good time to look at convertible bonds."
As of SSI's latest form ADV, filed last March, the firm's main shareholders are president John Gottfurcht (one of the firm's founders) and CEO Amy Jo Gottfurcht, with chief investment officer George Douglas and PM Ravi Malik also holding sizable stakes.
"In the case of SSI, the principal owners are retiring, and they're selling off the majority of their stake ... There's need for liquidity there," Needles says. "They're not involved in the day-to-day management of the portfolio so nothing should change with that."
Amy Jo Gottfrucht is retiring now, while John Gottfurcht is staying on with SSI for now but stepping back a bit from day-to-day operations.
For Resolute, SSI helps boost its fixed income presence, while Resolute brings SSI support with things like distribution. John Gottfurcht calls the deal "one of the most momentous occasions" in SSI's history. Douglas adds that SSI's "entire investment team is very excited" about the alliance with Resolute.
"We're pretty excited about this combination," Walid Shinnawi, senior vice president at SSI, tells MFWire. "The chemistry seemed to make sense."
"In the case of RSW, the principal sellers are not retiring," Needles says. "They're really just looking for a strategic partner to help them grow the business."
Summit, New Jersey-based RSW, launched in 2005, specializes in municipal bond investing and now has about $2.2 billion in AUM. According to its latest form ADV, also filed last March, the firm's current predominantly owner is Robert Waas: founder, CEO, and chief investment officer. Senior PM Matthew Werner also holds a sizable stake.
RSW is also mainly a separate account shop, with big relationships with some large broker-dealers. The firm had 11 employees as of December 31.
"They don't have a sales force. They've been kind of doing it themselves," Needles says. "If you're able to raise $2 billion [in AUM] without the help of a sales force, you could imagine that you'd be able to raise significantly more than that with the help of a sales force."
Waas calls Resolute "a perfect match" as an ally to help RSW "get to the next level."
Needles stresses that Resolute offers "customizable operational support," instead of trying to consolidate different shops together simply to gain scale by taking out costs.
"We're really on the organic growth end of the spectrum. We're not looking at firms that are bloated or mature," Needles says. "We're looking to partner with them early in their growth cycle ... We tend to be partner of choice for someone who's looking for a strategic partner to grow themselves to the next level."
Resolute can provide CFOs, CCOs and more to boutiques, when they're interested, as well as distribution support of course. Yet they're "not centralizing everything per se," Needles says. Crucially, Resolute keeps its boutique's teams intact, meaning that employees and leaders at the firms Resolute invests in become long-term allies. Thus, Needles says, culture is just as important as distribution and growth support.
"The people who run the day-to-day operations of the firms, they're not leaving," Needles says. "You are entering into a permanent partnership with each other, and you'd better like each other and get along and have similar values."
"We're looking to keep these affiliates as unchanged as possible and help them grow," Needles adds.
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