AMG finds synergies among its affiliates

Affiliated Managers Group Inc. in Prides Crossing, Mass., quietly has positioned itself as a major source of new investments.

The asset management company, which has 17 affiliates that collectively manage $81.4 billion, has begun packaging the 27 portfolios offered by the affiliates for distribution through third parties.

Earlier this year, First Union Securities Inc. in Richmond, Va., began to offer a multiaffiliate product, Diversified Managed Allocation Portfolios, put together by AMG. And according to Nathaniel Dalton, an AMG executive vice president, the company will be seeking more of such arrangements.

The product allows advisers to offer investors a series of portfolios managed by multiple AMG affiliates. The DMA portfolios create a range of asset, style and risk allocations designed to meet the investment goals of separate-account investors.

And AMG still is growing. It seeks midsize money managers to bring under its umbrella, as exemplified by its announced acquisition of Third Avenue Funds in New York, which will add four mutual funds to the group’s menu.

Most experts in the money management world see AMG as a benevolent force – one that helps midsize money managers reach new heights with little interference from Beantown. AMG never buys 100% of a company; instead it prefers to take a majority stake in a firm and leaves the principals in place.

No interference

“The midsized firms that believe their best days are behind them, or the principals all decide they want to sell out, to us seems like a statement on their future prospects, and aren’t attractive to AMG,” says Sean Healey, president and chief operating officer of the company.

It’s a philosophy that is key to AMG’s success. Quality money managers looking to partner with a larger organization are more likely to go with AMG because of the hands-off approach it takes with its affiliates, according to industry analysts.

“They can be choosy and wait for the perfect [money manager] to come along,” says Patti Ouimet, a vice president with Putnam Lovell Securities Inc. in San Francisco.

That approach is the main reason why firms such as Tweedy Browne Co. LLC in New York, Friess Associates Inc. in Wilmington, Del., and most recently Third Avenue Funds agreed to sell a majority stake to AMG, according to company executives.

“Evidence and practice state specifically that [AMG] does not interfere with the way in which a management company manages its money,” says David Barse, president and chief operating officer at Third Avenue, which last month announced plans to sell 60% of the firm to AMG.

The fact that AMG doesn’t interfere with the management of a company may help explain why the repute and performance of the affiliate changes little after a buyout.

Tweedy Browne’s flagship $4.2 billion Tweedy Browne Global Value Fund has been a hit with advisers for years. The five-star fund consistently finishes within the top quartile, if not the top percentile, of its foreign-stock category, according to Morningstar Inc. in Chicago.

The reputation of Friess Associates, which manages the Brandywine Funds, has taken a hit recently, but that has little to do with AMG and more to do with the market’s tone. The firm’s growth style is out of favor, and legendary money manager Foster Friess, now in his late 60s, has cut back his responsibilities at the firm.

But Bridget Hughes, an analyst at Morningstar, is still confident in the firm’s flagship $3.9 billion Brandywine Fund. “If technology stocks turn, the fund is almost sure to be left behind, at least for a little bit, but periods of underperformance should be expected here,” Ms. Hughes writes in a recently published report. “That said, we like the fund as a long-term holding.”

But what do companies such as Third Avenue get for joining AMG?

At Third Avenue, it helps put to rest succession issues. Marty Whitman, the company’s founder and lead manager of the Third Avenue Value Fund, is 78. Some concern always has existed about what will happen to his company when he retires.

The deal Third Avenue worked out with AMG ensures that he will be with Third Avenue for at least five more years and that the other principals in the firm will remain for at least 10 years.

But beyond succession issues, Third Avenue, as with all AMG’s affiliates, will get to take advantage of various “affiliate development” programs, such as the Diversified Managed Allocation Portfolios, says AMG’s Mr. Dalton.

He says the product gives those affiliates that don’t yet have a presence in separate accounts the ability to jump into that market. “In some distribution channels, it’s very difficult for midsized firms that are not built around a specific channel to penetrate that channel,” Mr. Dalton says.

In addition to distribution, AMG is able to leverage its size to benefit its affiliates when it comes to issues such as purchasing, accounting or even legal fees, Mr. Dalton says.