UK – London-based fund management group, Friends Ivory & Sime (FIS) is to acquire Royal & SunAlliance Investments (RSI) Group, the UK asset management business Royal & SunAlliance Insurance Group (RSA) with £36bn (€58.2bn) under management, for £240m The deal effectively doubles FIS’s assets under management from £34bn to £70bn.
Howard Carter, chief executive of FIS says: “This propels us into the top 10 active investment managers in the UK with a market share of 4%,”. A McKinsey study said asset managers need at least €100bn under management to have a cost effective base, a barrier group had penetrated with this move, he adds. The aim is to develop the business on both the institutional and retail side. “We did not buy a brand, but a platform on which to grow the operations.”
Under terms of the deal FIS will take over the management of RSI group’s third party retail and institutional funds, including some pension funds, which are worth some £6.6bn and has entered into investment management agreements (IMAs) for the life and general insurance funds, worth £29.4bn. These IMAs will run for ten years.
Carter points out that prior to the acquisition, FIS had increased the overall proportion managed for third parties to 53% of assets under management and the new operation would intend to increase this proportion. Both firms had a similar growth oriented equity style approach. He warned that there would be some redundancies. He is to be chief executive, but the new management team including chief investment manager is yet to be announced. “The selection will be on a best of breed basis.”
Richard Slimmon of Merrill Lynch who advised FIS on the acquisition says that in theory the insurance funds could pass back to RSI in case of underperformance or at the end of the ten years but this is unlikely. “The performance criteria will make it hard for the funds to underperform during that time,” he comments. He adds that that it is somewhat academic that the funds will remain under FIS management thereafter. ”By then they will look and function more look FIS products.”
Robert Matthews, managing director of institutional funds at RSI says the decision to sell to FIS was taken by the RSI’s parent company to allow it to concentrate on general insurance. “Selling the asset management business, which was a stand-alone company, allowed them to raise the capital needed to pursue this strategy,” he says.
Insurance funds will make up the bulk of FIS’s new £70bn assets under management, at £58.1bn, or 83%. Third party institutional funds will account for some 12% (£8.4bn), third party retail funds 3% (£2.1bn) and investment trusts some 2% (£1.4bn).
The funding for the deal came from internal cash resources, with a £190m loan on commercial terms from Friends Provident, the life company that has a majority shareholding in FIS. The deal expected to be “earnings enhancing” in the year to end 2003. The FIS share price rose by around 12% today following the announcement to close at 248p. The RSA share price fell by nearly 2% to 302p.