What's behind Sparx's Cosmo deal?
Selling a stake in Korean equities boutique Cosmo is part of a grander ambition to extend Sparx's investment capabilities deeper into Asia.
Sparx Group, the Ñ1.3 trillion ($12 billion) independent asset manager, is on the hunt to acquire investment boutiques that can deliver a broader range of investment capabilities and deepen its businesses in Asia.
Marc Fukami, managing director and head of corporate planning in Tokyo, says the firm is keen to replicate its successes with Seoul-based Cosmo Investment Management and Hong Kong-based PMA Capital Management. Now the firm would like to acquire players with expertise in real estate, currency and credit.
Last week Sparx announced it was in talks with Korean chaebol Lotte Group to sell part of its 67.9% stake in Cosmo. Lotte is keen to break into asset management and find ways to cross-sell existing casualty insurance and credit card businesses.
For Sparx, is this deal a case of a bid that's simply too generous to refuse?
No, says Fukami. The main reason for the deal is because Sparx and Cosmo are keen to extend the $3 billion boutique equities manager into new parts of the Korean market, particularly through mutual funds and pensions.
"The main reason for this deal is strategic: can we grow Cosmo by ourselves, or is it better to do so with Lotte?" Fukami says. The answer seemed clear, particularly given Lotte's 10 million credit-card customers.
Sparx is looking at any opportunities that surface, with particular interest in China, India and Vietnam. These could be traditional long-only or alternative managers; Sparx runs both types of strategies.
Some of these ambitions may take a while to realize: in China, for example, Sparx has been trying to promote itself as a manager for institutions with QDII licenses, but there is little interest among the Chinese for Japan exposure. (The firm hopes its PMA or Cosmo arms will prove more appealing.)
But it is also keen to develop local investment expertise, in, say, Indian equities or real estate. The firm prefers to acquire local managers, either wholly (as it did with PMA in 2006) or in part (as with Cosmo in 2005). In both cases, it knew the firms well, as they were originally investee managers from one of Sparx's internal multi-manager hedge strategies.
Fukami says now is a good time to be on the acquisition hunt, because the subprime and credit problems, along with volatility in emerging markets, is expanding the opportunities. He says that although Sparx Group has also suffered from declining assets under management (following the Topix losing 30% year to date), the firm's balance sheet remains strong.
He acknowledges competition from much bigger, traditional Japanese fund management companies, many of which are also trying to grow their business into Asia. But he says that while Sparx may lack their manpower, it's not trying to expand on its own. He believes the Cosmo and PMA models show that Sparx brought not only money but alternative-investment expertise and a global customer base to these companies, pointing to their rapid growth in AUM following acquisition.
In the meantime Sparx is deepening synergies with the $2.5 billion PMA, which runs Asian equity long/short, European and Asian credit and FX strategies. Last year it launched a Japan-domiciled retail mutual fund sub-advised by PMA covering Asian and Middle East equity markets, which went on to raise Ñ70 billion. It then launched two more PMA sub-advised retail funds in the United States, for Asian equities and Asian credit. Fukami says Sparx is building a pipeline of such ideas.
Marc Fukami, managing director and head of corporate planning in Tokyo, says the firm is keen to replicate its successes with Seoul-based Cosmo Investment Management and Hong Kong-based PMA Capital Management. Now the firm would like to acquire players with expertise in real estate, currency and credit.
Last week Sparx announced it was in talks with Korean chaebol Lotte Group to sell part of its 67.9% stake in Cosmo. Lotte is keen to break into asset management and find ways to cross-sell existing casualty insurance and credit card businesses.
For Sparx, is this deal a case of a bid that's simply too generous to refuse?
No, says Fukami. The main reason for the deal is because Sparx and Cosmo are keen to extend the $3 billion boutique equities manager into new parts of the Korean market, particularly through mutual funds and pensions.
"The main reason for this deal is strategic: can we grow Cosmo by ourselves, or is it better to do so with Lotte?" Fukami says. The answer seemed clear, particularly given Lotte's 10 million credit-card customers.
Sparx is looking at any opportunities that surface, with particular interest in China, India and Vietnam. These could be traditional long-only or alternative managers; Sparx runs both types of strategies.
Some of these ambitions may take a while to realize: in China, for example, Sparx has been trying to promote itself as a manager for institutions with QDII licenses, but there is little interest among the Chinese for Japan exposure. (The firm hopes its PMA or Cosmo arms will prove more appealing.)
But it is also keen to develop local investment expertise, in, say, Indian equities or real estate. The firm prefers to acquire local managers, either wholly (as it did with PMA in 2006) or in part (as with Cosmo in 2005). In both cases, it knew the firms well, as they were originally investee managers from one of Sparx's internal multi-manager hedge strategies.
Fukami says now is a good time to be on the acquisition hunt, because the subprime and credit problems, along with volatility in emerging markets, is expanding the opportunities. He says that although Sparx Group has also suffered from declining assets under management (following the Topix losing 30% year to date), the firm's balance sheet remains strong.
He acknowledges competition from much bigger, traditional Japanese fund management companies, many of which are also trying to grow their business into Asia. But he says that while Sparx may lack their manpower, it's not trying to expand on its own. He believes the Cosmo and PMA models show that Sparx brought not only money but alternative-investment expertise and a global customer base to these companies, pointing to their rapid growth in AUM following acquisition.
In the meantime Sparx is deepening synergies with the $2.5 billion PMA, which runs Asian equity long/short, European and Asian credit and FX strategies. Last year it launched a Japan-domiciled retail mutual fund sub-advised by PMA covering Asian and Middle East equity markets, which went on to raise Ñ70 billion. It then launched two more PMA sub-advised retail funds in the United States, for Asian equities and Asian credit. Fukami says Sparx is building a pipeline of such ideas.
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