Picture: REUTERS
Picture: REUTERS

Insurer Old Mutual has finally let superstar fund manager Richard Buxton go, selling the single-strategy business he runs at Old Mutual Wealth to him and his team, together with private equity group TA Associates, for a lower-than-expected £600m.

The wealth manager, which intends to list on both the JSE both and London in 2018, said on Tuesday Buxton and TA Associates would pay £570m in cash for Old Mutual Global Investors’ largest business by assets managed. The rest of the purchase is to come in the form of surplus capital meant to accrue to Old Mutual Wealth as its parent’s managed separation process completes.

“A hiccough in the managed separation has been Richard Buxton and the single strategy business in Old Mutual Wealth,” said Rahima Cassim, portfolio manager at Ashburton Investments. “Rumours of his exit to set up a boutique asset manager have been doing the rounds for a while and management alluded to this earlier this year, so this is not unexpected.”

In November, the £23.5bn single strategy business was left out of Old Mutual Wealth’s investor showcase, with CEO Paul Feeney focusing on its £14.3bn multi-asset business together with the advice and wealth management platforms, which had £101.8bn in assets under advice.

Cassim said the sale removed uncertainty around the timelines for the managed separation, where Old Mutual is quartering itself into separate units, but the lower price paid compared with market expectations was disappointing.

Adrian Cloete, portfolio manager at PSG Wealth, liked the price. “In my view Old Mutual Wealth received a very attractive price — at £600m —at this stage in the cycle for its single strategy business, and this is therefore a good outcome for Old Mutual shareholders.”

The numbers given at the showcase valued the remaining wealth business at a cumulative £116.1bn, based on funds under management and advice, by the end of December 2016.

This number has since declined 9.04% to £105.6bn as at the end of September. In the same period, Buxton’s team grew assets 9.36% to £25.7bn.

Still, Feeney’s team expects to list a large business in 2018.

“Old Mutual Wealth will be a very sizeable company when it lists,” a spokesman for the company said on Tuesday.

The group defined the integrated business model ahead of its proposed listing on the JSE and London Stock Exchange.

“The single-strategy business is less aligned to our new model – this business targets different market segments, namely wholesale and institutional, compared to Old Mutual Wealth’s focus on the retail market,” the spokesman said.

Feeney said previously the single-strategy business relied on institutional investors for its business, with only 20% of its assets coming from its relationship with Old Mutual Wealth. “Although the single-strategy business is a profitable business that has grown very strongly since 2012 on the back of
good investment performance, the business doesn’t really
fit strategically within Old Mutual Wealth.

“The single-strategy business also has a large performance fee component to its earnings, which makes its earnings more variable or lumpy in nature,” Cloete said.

Cassim said there was a perceived conflict of interest in having an asset manager in the same stable as the advisory business, which may have constrained net client cash flows.

“There should now be more transparency in determining fee-based versus performance fee earnings, and thus a clearer determination of a valuation multiple at listing. The remaining business will mainly be an advisory and platform business without an asset management element, and in the UK similar peers tend to trade at higher multiples than asset managers,” Cassim said.

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