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Arrows off target for Rothschild

Rothschild&#39s decision to put its retail and institutional asset management arms up for sale has come as no surprise to an industry struggling to survive the worst bear market for decades.

The fact that a business with £13bn under management is up for grabs has come as yet further evidence of how bad things have become, after the investment arm of Royal & Sun Alliance was sold off and Jupiter was put up for sale by Commerzbank and then taken off the market after failing to find a buyer.

Rothschild Asset Management chief executive Paul Manduca sounded resigned when he explained that it was market conditions which had sparked the move to sell rather than a real desire to grow its private banking division.

The decision is still highly significant. RAM may not be the biggest fund manager in the UK – one criticism of its funds has been that they do not have enough money in them – but it is still a major investment company with a well regarded multi-manager service.

It is also one of the better known names around. But last year&#39s rebranding of its retail operation, including Five Arrows, does not appear to have had the desired effect.

Alan Steel Asset Management consultant Alan Adam says: “It did not work. Rothschild&#39s portfolio is pretty good but it does not have a sexy image like some of the others and rebranding failed to alter people&#39s view of its stuffiness. It is like the Post Office. It changed its name but everybody still knows it is the same people behind it.”

Adam believes RAM overestimated how much income it would pull in and, faced with the option of riding out the downturn or bailing out, decided to leave the market.

But, as Adam points out, there is a world of difference between being up for sale and managing to secure a deal – something that Commerzbank found with Jupiter. Yet Adam says he would not be surprised if the German bank expressed an interest in RAM, with its multi-manager service suited to fit alongside Jupiter&#39s own.

Whether Commerzbank will be interested is open to question but, judging by the noises emanating from RAM, an approach would be welcomed with open arms.

Manduca, who is unlikely to have a part to play following a deal, says he is open-minded about whether the company is sold or seeks an alliance with a more substantial house. But he believes “you need to have a bigger business these days”.

He says there has been a lot of interest already and clearly expects there to be far more. But there was a similar buzz around Jupiter for many months before it was taken off the market although some fund managers say there is a clear distinction between the two.

A senior industry source says: “Buying Jupiter for £500m is a very different proposition to buying Rothschild. With Jupiter, you are buying a big company with a big brand and a massive retail base. It is a strategic buy. But with Rothschild, it is more about its assets and anyone that does come in for it – and there will be companies that are interested – will be looking to exploit these while cutting costs.”

The source believes that Rothschild could be surprised how little potential suitors are likely to offer for the business. Unlike the period in the 1990s when investment houses could command a price of up to 10 per cent of their assets under management, the source believes that RAM could fetch as little as 1 or 2 per cent in the current climate. With £13bn under management, that would price RAM at no more than £260m.

At such a low figure, the question is whether the Rothschild family would be prepared to sell.

HCF Partnership partner Richard Craven says: “I think it might. Loads of fund managers are running around looking for companies to buy but none of them are making any money. Rothschild at least has some degree of brand – although I am not sure how much prestige it has attached to it – and the potential to make money but it has massive fixed costs and no hope of seeing an upturn in the fortunes of its funds. The family might just think they should take the loss now and avoid redundancies to prevent their name being dragged through the mud.”

Companies likely be interested include Credit Suisse, Aberdeen Asset Management, LeggMason and Henderson. Credit Suisse recruited the two heads of its multi-manager service from Rothschild and there are obvious synergies between the businesses.

But an outside contender is New Star, which may be tempted by the prospect of acquiring an established multi-manager service. The company&#39s war chest is believed to be between £250-£300m – enough to strike a deal if RAM is willing to sell at 2 per cent of its assets.

While it is unclear at this stage as to which are the front-runners, there is little doubt that Rothschild will be hoping to find a buyer or strategic partner soon. Its funds are on hold with many IFAs and, the longer negotiations go on, the less likely it is that a takeover will happen.

The only consolation for Rothschild is that, while it may be the first major fund manager to fall victim to the markets, it is unlikely to be the last.


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