Morgan Stanley executives plan to sell the Van Kampen mutual fund business and
Invesco Ltd. has emerged as the leading bidder among those invited to look at the unit, according to market sources who declined to be identified.
Unlike investment banks such as Merrill Lynch & Co. and
Citigroup Inc. that have sold off the bulk of their money management operations in recent years, Morgan Stanley's move could point to a decision to focus on the institutional side of the asset management business — a logical step for a company with such a strong “institutionally focused brand name,” according to one market veteran, who asked not to be identified.
Morgan Stanley spokeswoman Erica Platt declined to comment, as did
Invesco spokesman Douglas Kidd. Spokesmen for other firms that investment bankers figure could have an interest in Van Kampen, such as Franklin Resources Inc. and Aberdeen Asset Management Co., likewise refused to comment.
As of June 30, the Van Kampen fund family — which Morgan Stanley bought in June 1996, for $1.12 billion in cash and debt — had a combined $86 billion in open- and closed-end mutual fund assets. It's unclear whether potential bidders are being asked to look specifically at that chunk of Morgan Stanley Investment Management's $361 billion in total assets as of midyear, or whether the firm's $65 billion in Morgan Stanley-branded retail funds are up for grabs as well.
Trying to sell Van Kampen alone while retaining the rest of the firm's retail assets could be tricky, some say.
After initially keeping Morgan Stanley and Van Kampen managers separate and distinct, MSIM has increasingly integrated the two groups in recent years — “sharing managers across products,” which would makes it “more difficult to unplug” Van Kampen from the organization, said Geoff Bobroff, president of East Greenwich, R.I.-based money manager consultant Bobroff Consulting Inc.
If MSIM's entire retail operation is on the table, the property could command a price of roughly $3 billion, assuming a revenue yield (the average fee on the average dollar of client assets) of between 65 basis points and 70 basis points, an earnings margin of between 25% and 30%, and a multiple of 10 times, noted one veteran investment banker, who declined to be named.
Hints of future
One consultant to money managers, who declined to be named, speculated that Morgan Stanley would be open to selling all of Morgan Stanley Investment Management, if an attractive offer came along.
The latest signals from the company, however, point to a continued interest in asset management. On its second-quarter earnings call July 22, Colm Kelleher, Morgan Stanley's chief financial officer, said company executives were more focused on fixing MSIM — after asset management business segments such as real estate and alternatives strategies suffered heavy losses in recent years — than on disposing of segments or doing contribution deals, in which Morgan Stanley would sell Van Kampen to another money management firm in return for a minority stake in that firm.
“We are currently in the process of turning around asset management,” Mr. Kelleher said on the call. “We've examined scale, expense, structure and performance issues of each business and are now executing the optimization of these distinct businesses.”
Among potential bidders for Van Kampen, Invesco could prove to be the best fit, because both Invesco and Van Kampen have sizable retail operations in Houston, said one former Morgan Stanley portfolio manager, who declined to be named.
Just as important, with the breadth and depth of their retail products, firms such as Invesco and Franklin could make the most of a relationship with Morgan Stanley's army of 20,000 brokers, according to another investment banker, who likewise declined to be named.
