Recent reports indicate that SunTrust will sell its asset management group Ridgeworth, according to Reuters. Three firms are reportedly interested. The price is estimated to be $250-$300 million on $48.1 billion in AUM — which is lower than the price that Henderson was rumored to be bidding in 2010 before that deal fell through.
Less a reflection on Ridgeworth — which has made significant inroads in a relatively short period, especially in the DCIO market — the sale reflects the need to raise capital on the part of SunTrust, which is still reeling from heavy losses incurred during the financial crisis.
Two of the rumored bidders have a presence in the DC market:
• Crestview Partners, which recently purchased Victory Capital from KeyCorp Bank; and
• Lightyear, owner of Cetera, which was formed when Lightyear bought three broker dealers from ING in 2010.
Entering and succeeding in the DC market is getting harder and harder as record keepers, broker dealers and advisors turn to DCIOs to subsidize more of their core services through revenue sharing and value-add tools. Getting on preferred investment lists is harder, and the pie is shrinking, with more money going into asset allocation funds — especially TDFs.
While DCIOs have far fewer wholesalers than do record keepers or mutual fund groups, there is still a substantial cost. At the same time, the DC market is becoming more attractive to asset managers, with some — like Legg Mason, American Century, JP Morgan and Fidelity — doubling down. If Crestview prevails, we may be seeing the beginning of DCIO consolidation, which hit the record keeping business big time and has now migrated to advisory practices.
Consolidation means greater profits for sellers but less choice and perhaps worse service for consumers — see the airline industry, for example.
