Genworth sale short list would be long list

Number of firms would likely be interested in insurer's wealth management business — if it's on the block

Oct 15, 2012 @ 3:57 pm

By Andrew Osterland and Darla Mercado

If Genworth Financial Inc. has its asset management business on the block, the company should have no shortage of suitors.

Reuters reported last Friday that Genworth had hired The Goldman Sachs Group Inc. to find a buyer for its turnkey asset management platform business and its alternative investments business, Altegris Investments Inc. Combined, the two businesses manage about $24 billion in assets.

A spokesperson for Genworth would not confirm Monday that the units were up for sale. Goldman Sachs was not immediately available for comment.

Genworth's credit rating was downgraded last week to BBB- by Standard & Poor's Rating Services, leaving it on the verge of junk status. With its insurance businesses struggling, selling the asset management businesses would make sense. The asset management business is changing and the platforms need infusions of capital, said Alois Pirker, a senior analyst with Aite Group LLC. Genworth may not be in a position to do that.

While some clients — notably insurance companies — still want the traditional program that includes investment management, other more rapidly growing segments of the market such as broker-dealers and registered investment advisers want some services, but not others.

“The TAMPS have had to learn how to unbundle their businesses. It's becoming a lot more a la carte,” Mr. Pirker said. “The traditional TAMP fits for clients like insurance companies, but the broker-dealers and RIAs want to retain fees. They like outsourcing, but if they're serious about investment management, the classic TAMP is not a good fit.”

Who are the most-likely buyers? Anybody who wants to ramp up their fee-based business, Mr. Pirker suggested. Topping the list would probably be regional brokerages such as Raymond James Financial Inc., Ameriprise Financial Inc. and possibly even Edward Jones, he said. The wirehouses already have in-house TAMPs for their wealth management businesses and are likely to be less interested.

LPL Financial Holdings Inc. is aggressively expanding its RIA and fee-based business, but bought TAMP provider Fortigent LLC earlier this year.

Large clearing firms such as J.P. Morgan Chase & Co. and RBC Capital Markets LLC also are potential buyers, Mr. Pirker said. Their clearing operations deal mostly with commission-based business, but a TAMP offering could broaden their client base.

A sale of Genworth's asset management businesses would leave it with its life and long-term-care insurance businesses and its fixed-annuity products — all three of which are interest-rate sensitive. The company also has its mortgage insurance business, the earnings for which are tied to the health of the housing market, noted Edward Shields, associate director of equity research at Sandler O'Neill and Partners LP.

Asset management has been a relatively steady source of earnings for Genworth, albeit a small one. During the first half of the year, the money management units earned $24 million, and they reliably generate $45 million to $50 million per year, according to Steven Schwartz, an analyst with Raymond James.

Before the financial crisis, asset management accounted for just 3% of Genworth's earnings, he added. But with the company's U.S. mortgage insurance business in the doldrums, asset management accounted for 36% of the company's overall operating income in 2011. Mr. Shields predicted that proportion will slip to 13%, as the housing market improves.

He also expects Genworth's insurance businesses to improve. “The U.S. housing market appears to be getting better — or at least not getting worse,” Mr. Shields said. “More normalized earnings for the U.S. mortgage insurance unit will counterbalance the impact of low interest rates on the other insurance businesses.”

And a sale of the asset management business would give the company a bigger capital cushion. Genworth spokesman Tom Topinka said the company doesn't comment on speculation.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

RIA Data Center

Use InvestmentNews' RIA Data Center to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

Events

What's the first thing advisers should do when they get home from a conference?

After attending a financial services conference, advisers can be overwhelmed by options, choices and tools. What's the first thing they should do when they get back to their office?

Latest news & opinion

Maryland jumps into fiduciary fray

Legislation would require brokers to act in best interests of clients.

8 apps advisers love for getting stuff done

Smartphone apps that advisers are using in 2018 to run their business more efficiently.

Galvin's DOL fiduciary rule enforcement triggers industry plea for court decision

Plaintiffs warned the Fifth Circuit that Massachusetts' move against Scottrade signaled that the partially implemented regulation can raise costs for financial firms.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print