Strike another fund firm from the list of the unattached. JP Morgan Fleming Asset Management
has agreed to purchase six-year-old Undiscovered Managers
of Dallas. The deal will bring the bank asset management arm some $600 million in fund assets. The price and terms of the transaction were not disclosed. Undiscovered Managers offers six mutual funds to investors, although it will only offer five when the deal is completed.
As part of the deal Mark Hurley
, chairman and CEO of Undiscovered Managers, and other senior team members at the firm will join JP Morgan Fleming. Hurley told the MFWire.com in an interview that the deal will not change the firm's operations from the client perspective and that he plans to continue the same strategy the firm was founded on in 1997. The firm will also keep its separate offices in Dallas.
He added that the funds will continue to carry the Undiscovered Managers brand but will become part of the JP Morgan Funds family that has 70 funds and some $110 billion in assets under management.
Undiscovered Managers has built a business from identifying top performing asset managers and tapping their skills for advisors by signing them on as subadvisors to its funds.
Hurley explained that the sale was driven by the need firm's need for scale in pursuing its business strategy.
"This is a business that has incredible scale requirements," said Hurley in an interview. "If you don't have the scale it is a tough business to be in."
Undiscovered Managers was founded in 1997 with the backing of Dallas-based AMRESCO. However, AMRESCO hit its own financial troubles because of losses in the prime-lending market and was forced to liquidate last year. That failure left Undiscovered Managers without the deeper pockets it needed to build its advisor-distributed fund business, said Hurley. Since that time the firm turned to private investors for bridge financing.
"JP Morgan Fleming has incredible resources. As partners go I could not think of a better one," said Hurley citing the bank's expertise with alternative investments, wealth management, research and intellectual capital. "Investment advisors are essentially institutional investors. JP Morgan is essentially an institutional firm," he said. "They bring a lot more to the table than we do."
Hurley said that one of the priorities for Undiscovered Managers will be to tap those resources to develop new products, especially in the alternative investments and wealth management spaces.
Hurley will report directly to George Gatch
, managing director and president of JPMorgan Funds. In a statement, Gatch affirmed that the transaction was designed specifically to increase the value the bank brings to the investment advisory community. "We are enthusiastic about the opportunity to expand our ability to assist advisors in serving the needs of the affluent market by partnering with Mark and his team," stated Gatch.
Although Undiscovered Manager will keep its identity through the merger, there are some changes in store for the funds. The smallest fund offered by the family will be closed and
JP Morgan Fleming will take over as subadvisor to the family's REIT Fund.
That change was in the works prior to JP Morgan's decision to buy the firm, said Hurley. Undiscovered Managers started searching for a new subadvisor when the incumbent refused to extend its contract past the end of the first quarter of 2004. Meanwhile, JP Morgan Fleming agreed to subadvise the funds for the next three years.
It was those discussions about taking over as a subadvisor that got the ball rolling on the eventual deal. "It started us talking," admits Hurley.
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