Although only two asset management firms have come to market with initial public offerings (IPOs) this year, the fact that there have been any at all has triggered speculation that investment management IPOs may slowly be coming back into vogue.

Those recently seeking to raise capital through a public offering include Cohen & Steers of New York, and Calamos Asset Management of Naperville, Ill. While not an investment manager on its own, Morningstar, the independent mutual fund and stock research and data provider in Chicago, is also hoping to tap the capital markets and raise cash.

Will other asset managers seek to tap the capital markets by way of their own public offering of shares? The conclusion among analysts is divided. While some believe IPO activity will spike, many aren't betting on an IPO tsunami to flood the investment management world.

Spurred by a confluence of issues, including the mutual fund scandal, the IPO market could be heating up, concludes a recent report from Putnam Lovell NBF Securities. According to the report, "The Age of Scandal," this year will feature significant merger and acquisition activity, as well as IPOs. Putnam Lovell expects a "global resurgence in money management IPOs."

Robert Hansen, an equity analyst with Standard and Poor's of New York, said he doesn't foresee this as a trend, per se. However, because a number of asset management companies have done well in recent years, particularly those focusing on investment niches, he foresees select IPOs by specialty investment firms.

But not everyone is so optimistic. "I think there is going to be a limited amount of asset managers coming to market because there isn't enough sizzle with these companies," said David Menlow, president and founder of, a research firm in Milburn, N.J.

With an exception or two, asset managers haven't had the stomach for staging IPOs in recent years. The last flurry of IPOs within the industry took place in the late 1990s. Instead, fund companies seeking a fresh infusion of greenbacks in the past few years have largely agreed to be acquired or even "adopted" by other, usually larger, private or publicly traded companies, many European-based. In adoptions, fund managers agree to let another company become the fund advisor, while they continue to manage assets as fund sub-advisor.

The IPO Scorecard

So far, the flurry of 2004 activity appears to be centered among mid-sized investment management firms. The sole anomaly is General Electric's spinoff of Genworth Financial, which includes GE's insurance, mortgage, asset management and annuity businesses. Genworth netted a cool $2.83 billion when its newly listed stock began trading in late May of this year. Genworth was the second-largest IPO within the past 12 months, second only to China Life International's IPO, according to Renaissance Capital of Greenwich, Conn., the proprietor of the Web site and investment advisor to the seven-year-old, $21 million IPO Plus Fund.

In March, Cohen & Steers, which manages $15.1 billion and is the largest manager of real estate mutual funds in the U.S., registered to publicly offer 7.5 million shares. The firm began publicly trading Aug. 13 and raised $97.5 million. Martin Cohen and Robert Steers founded the firm in 1986 after having successfully parlayed their real estate mutual fund investment prowess at another firm.

According to the company's registration documents, the proceeds will be used to expand product offerings and distribution. The firm will also use $3.3 million later this year to acquire a 50% equity stake in real estate manager Houlihan Rovers SA of Brussels, Belgium. The firm specializes in European real estate markets.

Cohen & Steers has also been diversifying, adding a utilities fund as well as fixed-income products to its narrowly focused real estate fund offerings.

Morningstar Reaches Out

This past May, Morningstar filed for its maiden voyage into the capital markets. Morningstar has become a household name to mutual fund investors and mutual fund companies alike since its founding in 1984 by its Chairman and CEO Joe Mansueto.

According to its red herring filing, Morningstar provides data to three million individual investors, 100,000 financial advisers and 500 institutional clients, including fund groups. In 2003, its largest database product, Principia, accounted for almost 21% of the firm's revenues, with Morningstar licensed data accounting for 16.1% of revenues, and its proprietary Web site,, accounting for 11.7%.

Morningstar intends to use its IPO proceeds to fund general operations and facilitate future access to capital markets, according to the registration filing. It will also consider acquisitions and joint ventures. And it expects to focus more on its equity analysis by hiring an additional 20 analysts. Since April 2003, the firm has doubled its stock analyst staff from 24 to 48.

Alternative Investments

In early August, Calamos Asset Management, which has $32.3 billion in assets under management, filed a red herring registration for its intended IPO indicating that, 27 years after it first introduced the convertible securities investment strategy that brought it recognition and considerable assets, it is ready for the next quantum leap. Calamos is led by Chairman, CEO and Co-Chief Investment Officer John P. Calamos and his nephew, Senior Executive Vice President and Co-Chief Investment Officer Nick Calamos.

The firm has increased the assets in its open-end funds tenfold since the end of 2001, but 31% of assets are in the Morningstar five-star rated Calamos Growth Fund. The company has 51% of assets in open-end funds, 18% in closed-end funds, 9% in institutional accounts and 21% in separately managed accounts.

While the company has seen revenue spike 243% from year-end 2001 through year-end 2003, it has also seen its operating expenses more than double, from $42.5 million to $94.0 million over the same period.

Now it is looking to expand its alternative investments offerings. Amid growing assets, its popular market-neutral fund closed to new money in March 2003.

So far this year, there have been 122 completed IPOs, with another 106 still in registration, according to's data through Aug. 18. If all comes to fruition, that accounts for a 235% increase from the 68 IPOs executed in 2003, but still a far cry from the whopping 486 firms that began trading publicly in 1999, and an additional 406 that did the same in 2000.

Back to the Future

IPOs among money management firms were last in vogue in the latter part of 1998 and 1999, when Federated Investors of Pittsburgh, Gabelli Asset Management of Rye, N.Y., and Neuberger Berman of New York all staged their own IPOs.

For Neuberger, which Lehman Brothers acquired last year, tapping the IPO market was a double take. The firm first filed a registration statement in August 1998 but withdrew that application two months later, citing "unfavorable market conditions." The company said it had decided that the proposed offering would not be in the best interest of the firm. Neuberger Berman refiled for an initial public offering in August 1999, with the stock debuting that Oct. 13. The IPO raised more than $91 million.

NEXT WEEK: In a follow-up article, Money Management Executive will explore the pitfalls that lurk in asset management IPOs and hear advice from one fund company president who took the plunge.

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