(Bloomberg) -- One of the things Sean Healey missed most when he left Goldman Sachs Group Inc. in 1995 was his business card. Flashing it was a surefire way to convince people of his credentials.
“People would say, ‘Oh, you must be a genius,”’ Healey jokes.
Then he moved to Boston to work for a three-person startup with a bland name and a big idea. Affiliated Managers Group Inc. set out to buy stakes in equities money-management companies, including hedge funds, and share their investment fees. In return, the owners got cash for the companies they had built.
Healey’s AMG card didn’t have the same mojo as the one from Goldman, Bloomberg Markets magazine reports in its August issue. And Healey handed it out often because he was cold-calling money managers, trying to convince them to sell.
The demographics of the fund management business worked in his favor. Baby-boom-era managers who started their funds in the 1970s were ready to sell as they prepared for retirement. Still, the Goldman alum usually got the brushoff.
“They treated you like dirt,” Healey says.
A varsity wrestler when he was an undergrad at Harvard University, Healey kept fighting. AMG has since locked up chunks of mutual fund companies Yacktman Asset Management Co.; Tweedy, Browne Co.; Friess Associates LLC (manager of the Brandywine Fund); and Cliff Asness’s hedge fund AQR Capital Management LLC.
Healey has found a way to make money -- lots of it -- by choosing managers who in turn pick good stocks. And he favors equities, not bonds.
To profit in the current environment, “investors will have to take risk,” he says. “Over the long term, the best return for investors will be in equities.”
AMG’s 28 affiliated fund managers -- plus one wealth adviser -- controlled $392 billion as of March 31. The fees earned by the 27 fund firms in which AMG held stakes in 2011 totaled $1.7 billion, up 25 percent from $1.36 billion in 2010. AMG’s share was $553.4 million in 2011 and $489.2 million in 2010.
The firm’s stock has risen more than sixfold since the company’s initial public offering in November 1997. It’s up 12.5 percent this year as of Monday.
AMG succeeds because it buys top-performing funds and doesn’t get in the way of independent-minded managers, Healey says. Asness, for one, is an outspoken libertarian who has a tattoo of Captain America’s shield on his left arm.
“We have wild personalities in the money management business,” says Don Putnam, co-founder of Grail Partners LLC, a San Francisco-based firm that invests in money managers. “AMG has a secret sauce.”
The ingredients, says Healey: Identify skilled managers and put them in social situations -- dinner, golf -- to make sure the prospective partners will get along. He never buys 100 percent of a firm, since managers need to have skin in the game to stay motivated. Healey also requires sellers to sign a 10- year employment contract, just to be safe.
Then he leaves them alone.
AMG’s funds are attracting cash while others lose it. Investors have pulled $502 billion out of U.S. stock mutual funds since 2007, according to the Investment Company Institute in Washington. The money has gone to bond managers, who have vacuumed up $1 trillion, the institute says.
AMG, by contrast, had positive flows for the eight quarters ended on March 31, taking in $40 billion.
These days, AMG is looking mostly for hedge funds and emerging-markets managers because they’re harder to replicate with low-cost index funds, another threat to AMG’s business.
In March, Healey went further afield and agreed to buy Veritable LP, a firm that manages the financial affairs of 200 wealthy families.
Healey returned to plain-vanilla mutual funds in April when he agreed to buy most of Yacktman, based in Austin, Texas. The Yacktman Fund returned 7.3 percent last year, more than triple the 2.1 percent return on the Standard & Poor’s 500 Index.
Healey and a majority of his 120 employees make their deals from a hilltop mansion in Prides Crossing, Massachusetts. AMG’s 90-acre (36-hectare) spread once belonged to William Loeb III, the late publisher of the conservative Union Leader newspaper in Manchester, New Hampshire.
Healey, the son of a Marine lieutenant colonel, shares some of the former owner’s politics. His wife, Kerry, was lieutenant governor of Massachusetts under Mitt Romney from 2003 to 2007. Now, she’s foreign policy coordinator on Romney’s campaign for president. Former AMG Chief Financial Officer Darrell Crate moonlighted as treasurer for Romney’s failed campaign in 2008. He left AMG in February 2011 to do the same job again, and to run private-equity firm Easterly Capital.
Healey recently paid $17 million for a house in Florida’s Palm Beach, where he goes to get away from Massachusetts weather -- and Massachusetts politics.
During Kerry Healey’s term as lieutenant governor, news helicopters routinely hovered over their house, Healey says, and the Boston Globe once referred to AMG’s offices as the “state Republican Party headquarters.”
After closing one deal, Healey headed to the porch to smoke a cigar. A helicopter approached and hovered outside. A photo appeared on the front page of the Globe that Sunday.
“There is no other place like this,” Healey says, shaking his head. “Politics is a blood sport.” He’d rather talk about money management. After his 17 years in business, fund managers know who he is. His business card is worth something again.
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