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Rating:This Subadvised Fund Shop Is Poised To Do Its First Deal Or Two Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, June 15, 2016

This Subadvised Fund Shop Is Poised To Do Its First Deal Or Two

Reported by Neil Anderson, Managing Editor

Gene Needles is poised to make American Beacon's [profile] first acquisitions soon.

Gene L. Needles Jr.
American Beacon Funds
Chairman, President, Chief Executive Officer
"It's likely you'll see one or two this year," Needles tells MFWire.

Indeed, the buzz is that Needles may pull the trigger on a deal within mere weeks.

It's been seven years since Needles took over American Beacon, and a little more than a year since new private equity backers (Kelso & Company and Estancia Capital Management) bought the Irving, Texas-based subadvised mutual fund shop. M&A has been on his mind since the beginning.

"We haven't executed one, not for lack of opportunity," Needles says. "We're pretty picky. We've talked to over 100 potential acquisitions since I've been here ... almost 20 this year alone."

American Beacon now has $50 billion in AUM, $25 billion of which is in its mutual funds, and they work with 32 subadvisors. Next week Paul Cavazos will join American Beacon as chief investment officer, leading the investment team and working with those subadvisors.

"Going down the road, he will be a big part of our expansion plans as we either seek out new subadvisors for new products and/or make acquisitions," Needles says.

Needles describes American Beacon's philosophy as balancing a long-term, defined benefit-style view (drawn from its origins as the in-house pension and defined contribution manager for its old parent, American Airlines) with "an appetite for innovation". In subadvisors, Needles looks for "institutional quality and enduring value," and he has been very selective.

"Not everything new is good ... We've passed on tens of billions of dollars of things that sounded really good or performed well right out of the gate ... and almost all of them blew up," Needles says. "The scrutiny is even higher on an acquisition."

To do a deal, Needles says, you have to ask, "Can you provide value to these acquisitions or are you just a holding company for them?" He's looking for "underappreciated investment excellence."

"You double the risk when you're buying proprietary asset managers," because you worry about both the clients and the employees sticking around, Needles says. "Integrating is harder, too."

Other subadvised mutual fund shops have not yet caught Needles' interest.

"We have looked at managers of managers. We thought we had a better mouse trap," Needles says. "I don't think that's something you know until you look."

"We are not an acquirer of assets," Needles adds. "We want firms that want to grow themselves to the next level."

And Needles is still watching for potential new subadvisors, too.

"We've never lost in a competition for a subadvisor," Needles says. 

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