Spouting Rock quadruples AUM with Penn Capital acquisition

The asset management firm is looking to roll up boutique asset managers onto a single platform

Spouting Rock Asset Management, which spawned out of a family office two years ago, announced the acquisition of Penn Capital Management Co., an asset manager more than two times its size.

Spouting Rock, which has $691 million under management, will add $2.7 billion under administration, including $2.3 billion under management, with the acquisition of Philadelphia-based Penn Capital.

The deal, which is partially funded by private investors and is expected to close in the first quarter of 2021, is an example of how the Bryn Mawr, Pennsylvania-based Spouting Rock plans to grow into a back office and distribution platform for established boutique asset managers, according to chairman John Coyne.

“This is part of the Spouting Rock DNA,” he said, citing Chief Executive Andrew Smith’s record of overseeing more than 50 acquisitions during his time as co-CEO of Aberdeen Asset Management.

“All the managers we’re acquiring or looking to acquire are mature organizations with gravitas and a history of accomplishments,” Coyne said. “What we’re trying to do is simply take away the burdens that are non-revenue generating and are distractions to them being successful in their core business of managing money.”

Spouting Rock, which started as a family office in 2006, has already completed two smaller acquisitions and now has six portfolio managers and seven strategies offered as mutual funds and separately managed accounts.

Penn Capital will add 14 strategies and nine managers, including veteran portfolio manager Richard Hocker, who will be stepping down from his role of Penn Capital CEO to focus on portfolio management.

While the white-hot consolidation among registered investment advisers has gained most of the headlines lately, the Spouting Rock strategy is likely to appeal to certain boutique asset managers, said Mark Bruno, managing director at Echelon Partners.

“The concept of a shared services platform has been gaining traction and is starting to appeal greatly to a wide range of sellers, because it provides a good solution for succession in many cases,” he said. “It also allows owners and founders to offload operational and management responsibilities and focus on the things they love most, like managing money or working with clients while they gradually transition into retirement or a scaled down version of their long-time roles.”

Spouting Rock’s strategies cross a spectrum of equity, fixed income and some alternative strategies such as long-short equity.

While active management, in general, has seen assets migrate toward indexed strategies, there is no reason to believe active is completely dead, according to Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

“Investors have remained loyal to actively managed fixed income strategies in contrast to equity mutual funds in 2020,” he said. “The addition of Penn Capital’s credit intensive fixed income team should provide additional support as the combined firm competes against larger players.”

Coyne said Spouting Rock will continue to seek out asset managers looking for a succession plan or to offload certain distribution and back office duties.

“Right now, we are mutual funds and SMAs, but stay tuned for acquisitions in the ETF area,” he said. “We’re agnostic to active and passive; we’re just looking for good strategies.”