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Morgan Stanley to exit retail asset management biz, offload Van Kampen to Invesco for $1.5B

By Mark Bruno

October 19, 2009 8:10 pm ET

Morgan Stanley & Co. announced this evening that it will shed its retail investment management operations--namely its Van Kampen mutual fund business--in a transformational deal that is valued at $1.5 billion.

Money manager Invesco will acquire Morgan Stanley's retail asset management unit with $1.5 billion in a combination of cash and stock.

The unit, which includes Van Kampen Investments, has $119 billion in assets under management, Invesco said. As part of the deal, New York-based Morgan Stanley will receive a 9.4 equity stake in Invesco and $500 million in cash.

Morgan Stanley will still manage more than $267 billion in institutional assets. But the deal, as Morgan Stanley noted in its announcement late Monday, will "mitigate certain affiliated product sales restrictions faced by Van Kampen portfolio managers since the closing of the Morgan Stanley Smith Barney venture," according to Morgan Stanley co-president James Gorman.

The transaction, which has been approved by the boards of both companies, is expected to close in mid-2010.

Morgan Stanley agreed to sell Van Kampen to Invesco last month, as InvestmentNews reported, and had started informing its clients of the deal wiithin the last several weeks.

This deal follows the $1 billion agreement Bank of America inked to sell its Columbia investment management business to Ameriprise last month.

At closing, Invesco will have about 700 investment professionals across all major global markets. Chief Financial Officer Loren Starr said the company expects the deal to add 11 percent to profit in the first 12 months after closing.

Despite the recent market rebound, Atlanta-based Invesco has continued to be hurt by sharply falling markets in 2008 and early 2009 that reduced the value of the assets it manages for retail, institutional and wealthy clients around the world. The company's second-quarter profit shrank by nearly 54 percent, as the value of the assets the company manages declined, eroding investment-fee revenue.

As of Sept. 30, assets under management totaled $417 billion, up slightly year-over-year. Invesco is slated to report results for the third quarter on Tuesday before the market opens.

In the second quarter, Morgan Stanley's asset management operations reported a slightly wider pretax loss of $239 million. Assets under management at June 30 tumbled to $361 billion from $579 billion a year earlier. The decline reflected net customer outflows of $121.5 billion over the course of the year, mainly in the company's money market and long-term fixed income funds.

Going forward, Morgan Stanley said its investment management group will include several institutional-focused businesses, including a long-only business (equity and fixed income), a direct hedge fund business, and a fund of funds business. It also will include a liquidity business and a merchant banking business, with the bank's real estate, private equity and infrastructure units.

In Japan, Morgan Stanley Investment Management's (MSIM) equity management operations will be sold to Invesco as part of the transaction, but the bank will retain its fixed income investment team and a sales and client service team to serve Japanese investors.

The deal marks the latest in a string of money manager takeovers of bank assets. Bank of America Corp. last month sold the long-term asset management business of its Columbia Management unit to Ameriprise Financial Inc., a financial planning services firm based in Minneapolis, for up to $1.2 billion in cash. And in June, British bank Barclays PLC agreed to a $13.5 billion offer from U.S. investment manager BlackRock Inc. for its asset management arm, Barclays Global Investors.

Van Kampen President and CEO Jerry Miller said in a statement on the Van Kampen Web site that Invesco and Van Kampen Investments will operate separately until the deal closes. Invesco will be counting on Van Kampen clients to stick with the firm through the transition, and Miller's statement sought to reassure investors of the firms' shared investment strategies.

"Our organizations have complementary investment strengths, product line-ups, business capabilities, firm cultures and shared values," Miller said. "We anticipate a fruitful partnership with a common goal to even better serve our mutual clients."

Associated Press contributed to this article

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