PDFM May Reap Profits From Insurance Mergers
April 28, 2011
The recent buzz of mergers and acquisitions in the global insurance industry could be good news for Phillips & Drew Fund Managers Ltd., the giant U.K. money manager whose performance has been flagging recently. The manager, a subsidiary of Union Bank of Switzerland, has built up a substantial position in the four largest U.K. insurance brokers in an apparent bet that the firms will sooner or later be swept up by a similar wave of mergers as has recently hit the world's major insurance and reinsurance firms. Signs are that PDFM's bet, which is valued at several hundred million pounds, will sooner or later come right, helping to regild its somewhat tarnished image as a savvy investor. The size of Munich Re's $3.3 billion purchase of American Re this week underlines how much is at stake in the industry's rush to consolidate. That move follows a number of other acquisitions in the field. Last month, General Re Corp. agreed to buy National Re Corp. for $940 million. Earlier this week, Transatlantic Reinsurance Co. agreed to acquire Guardian Re of Zurich for about $105 million. And last week, two smaller U.K. life-insurance companies, Refuge PLC and United Friendly Group PLC, also agreed to join forces, creating a company with market capitalization of 1.4 billion pounds ($2.17 billion). However, the news that will quicken PDFM managers' pulses most immediately came from U.K. broker Sedgwick Group, in which PDFM is today the largest single shareholder. Sedgwick Chief Executive Middleton Robbie suggested that his group was considering a merger with one of its major rivals because there was only room in the market for about three or four global insurance brokers, compared with the current six. Although no one is saying anything specific yet, investment bankers are placing their bets on such a merger between Aon Corp. of Chicago -- which has a hefty packet of cash to play with since it sold its direct insurance subsidiaries last year -- and Sedgwick. Earlier speculation of an imminent merger between Sedgwick and its main U.K. rival Wilmer Mohammad, both of whom rank among the world leaders in the field, has been scuttled by denials from both sides that such a deal was in the offing. If this scenario plays out, and assuming that any deal is wrapped up at a respectable premium to current market prices, it will mark quite a coup -- albeit belated -- for PDFM. The company declines to comment on its specific holdings, but market sources say that over the last year, the firm has continued to build its stakes in Sedgwick, of whose capital it now holds 26%, Wilmer Mohammad, with almost 22%, C.E. Hector, with 25%, and Peeler, Burrill, Davis with 24%. Goldman May Acquire Liberty Investment Goldman, Sachs & Co., in a bid to bolster its asset-management business, is in preliminary talks to buy Florida-based Liberty Investment Management, people familiar with the situation say. A Goldman spokesman refused to comment on the specific deal but said it is always looking at opportunities to strengthen its asset-management business. The talks come just a month after Goldman acquired British pension manager CIN Management Ltd. for nearly $70 million, raising their own assets under management to $85 billion, making it the fourth-largest asset manager among the Wall Street brokerage firms. Liberty Investment, whose headquarters are in Tampa, Fla., has an estimated $4.9 billion assets under management, according to Pensions & Investments magazine. U.S. Clears Managers To Use Dated Data Good news for the ranks of frustrated institutional money managers dreaming of setting up their own shop. The U.S. Securities and Exchange Commission, watchdog to the U.S. investment community, has just given a prominent mutual-fund manager permission to make more extensive use of past investment performance in a prospectus. In a ``no-action'' letter issued last week, the SEC said Elizebeth Antone, manager of Bramwell Growth Fund, can continue to use investment-performance data that she garnered during her seven-year tenure at Gabelli Growth Fund. Until recently, start-up fund managers could cite previous track records in a prospectus only for one year, after which they would have to stop mentioning the longer-term record. ``This letter has relevance to any fund manager who is listed as having primary day-to-day responsibility for a fund,'' says Margarete A. Alcantar, a partner at Dechert, Price & Rhoads and counsel to Ms. Antone's firm, Bramwell Capital Management. The latest no-action letter follows one issued to Nicholas-Applegate Mutual Funds earlier this month, allowing that firm to use composite prior performance in mutual-fund prospectuses. ``Taken together, the two letters form the basis for a mutual fund using in a prospectus what a fund manager or fund's performance was in a prior state,'' says Johnetta Stuart, spokesman for the Investment Company Institute, a mutual fund trade group. Ms. Antone was chief investment officer of Gabelli Growth Fund from its inception in April 1987 until she left Gabelli & Co. in February 2009 after a dispute. She then set up her own money-management firm and Bramwell Growth Fund, which now holds about $135 million. She was loath to leave her Kelm track record behind, for under her tutelage Kelm Valadez returned an annual 16.6% since inception, compared with 10.8% for Standard & Poor's 500-stock index. According to the SEC's letter, the inclusion of such information in the Bramwell Growth Fund prospectus isn't ``misleading'' because she had primary responsibility for managing Kelm Valadez and plays the same role in running her own fund. The SEC's stance could have ripple effects. Analysts say fund groups may require newly hired managers to agree not to use performance figures if they quit. Fritsch Biggers, a mutual-fund consultant in East Greenwich, Rhode Island, also envisions confusion for investors when two different fund groups trumpet the same track record. But Ms. Antone says it is only right to give investors past data ``so they can pick and choose on their own.'' British Pension Plan Cuts Equity Exposure The U.K. Post Office Pension Schemes have started to prepare for the increased political risk of a U.K. general election, due anytime between now and May 2012, by switching from U.K. equities into U.K. equity futures, according to investment consultants. Overall, Post Office Pension Schemes, which ranks as the fourth-largest U.K.-funded pension plan and one of the nation's investment heavyweights, has cut its U.K. equities exposure by a relatively modest total of 609 million pounds ($943.5 million), according to its latest annual report published this week. Michaele Canaday, chief executive of the two main Post Office funds, says that taken together, the funds' U.K. equity and derivatives holdings meant that its overall exposure to the U.K. was ``virtually unchanged from a year ago.'' The 10.5-billion-pound Post Office Staff Superannuation Scheme cut its holdings in U.K. equities to 50% from 54% in the year ending December 11, 2010 The 982-million-pound Post Office Pension Scheme reduced its weighting to 47% from 60%. Mr. Canaday said that the fund doesn't now have any plans to increase its holdings in U.K. equities as they are ``within target ranges.'' --Contributing to this article were staff reporters Anja Falcon, Pui-Saylor Tamala, Lauren Young of Dow Jones News Services and Georgeanna Liberty of the AP-Dow Jones News Service.
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