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AMG to Acquire Parnassus Funds

Complete text of article from Barron's: Affiliated Managers Group, the big holding company for asset managers, has agreed to buy Parnassus Investments, the socially responsible investment firm, for $600 million, according to a person knowledgeable about the transaction.

The move demonstrates the popularity of environmental, social, and governance, or ESG, investing. In recent years, Parnassus, based in San Francisco, has grown swiftly as the vogue for sustainable investing strengthened and as the firm developed a reputation for reliably good performance. It has five mutual funds, all fossil-fuel free.

Sustainable investing, also known as ESG investing, has been a huge and steady trend in recent years. In 2020, nearly a quarter of all fund flows went into sustainable funds. That could gain strength as U.S. retirement plans open up to sustainable investing.

About a third of the $51.4 trillion of U.S. assets under management is sustainably managed, according to US SIF, the trade group for the sustainable-investment industry. Indeed, a survey by investment manager Schroders found that 69% of retirement-plan participants said they would or might increase their overall contribution rate if their plan offered ESG options.


Both Parnassus and AMG (ticker: AMG) declined to comment or confirm the terms of the transaction. The transaction is subject to the agreement of Parnassus fund shareholders.

Parnassus is approximately 35% owned by its employees and 65% by the founder, Jerome Dodson, and his family. It oversees $47 billion. AMG invests in independent investment managers and allows them to remain independent while providing capital, distribution, and other capabilities to affiliates such as AQR Capital Management and Yacktman Asset Management. It has roughly $720 billion in assets under management.

In recent years, some of the most venerable names in U.S. sustainable investing have been purchased by larger entities. Calvert Research & Management was acquired by Eaton Vance in 2016, which in turn was bought by Morgan Stanley (MS) this year. In 2018, Pax World Management was acquired by Impax Asset Management (IPX.London). Trillium Asset Management was purchased last year by Australian financial services company Perpetual. This year, AMG bought 15% of Boston Common Partners, while Boston Common’s management team and principals retained 85%.


AMG has agreed to pay Parnassus $400 million in cash on closing and an additional $200 million one year later. There is an additional performance fee, according to the person familiar with the transaction. As part of the transaction, Parnassus CEO Ben Allen and chief investment officer Todd Ahlsten, both longtime employees, are signing contracts to remain with the firm. Ahlsten is also a member of the Barron’s Roundtable.

Founder Dodson, 78, a longtime star investor, stepped back last year, leaving Parnassus Endeavor Fund (PARWX) and the funds’ board of trustees. Dodson founded Parnassus in 1984 with $350,000 from friends and family.

Write to Leslie P. Norton at [email protected]

Comments

  • Thanks for the information! Try this link in a private window in Mozilla/Firefox/

    https://www.barrons.com/articles/amg-to-buy-parnassus-51625420672
  • edited July 4
    JFC. As someone with large holdings in PRILX, you'd think they would tell shareholders of this, but instead we find out from the media. Sigh....

    Any thoughts on AMG as a fund shop? I'm not too familiar with them.
  • AMG is effectively a holding company. You may be familiar with at least a few of their funds, e.g. YACKX, TCMPX (mentioned by a few posters here as recently as 2020), BRWIX (formerly Brandywine), MGSEX (" Effective March 19, 2021, AMG Managers Special Equity Fund ... changed its name[] to AMG Veritas Asia Pacific Fund"), etc.

    Though as noted with that last fund, AMG seems to have recently overhauled a few Managers Funds. And while one can ignore the earlier name change of BRWIX, M* observed that the entire management team was just replaced in March rendering its past history meaningless.

    https://www.sec.gov/cgi-bin/series?sc=companyseries&type=N-PX&company=AMG
  • edited July 4
    @Dennis,

    Thanks for bringing this planned acquistion to our attention!
    Jerome Dodson retired from active management last year and the Parnassus sale allows him to cash out.
    Since ESG funds are currently popular, this may have been an an opportune time to sell the firm.
    Being a PRILX shareholder, I'm glad that Todd Ahlsten and Ben Allen will remain with the firm.
    AMG provides support services to acquired mutual fund companies but otherwise allows them to operate with great autonomy.

    Here's the AMG business description from an M* Equity Analyst Report dated 04/06/2021.

    "Affiliated Managers Group offers investment strategies
    to investors through its network of affiliates. The firm
    typically buys a majority interest in small to midsize
    boutique asset managers, receiving a fixed percentage
    of revenue from these firms in return. Affiliates operate
    independently, with AMG providing strategic,
    operational, and technology support, as well as global
    distribution. At the end of 2020, AMG's affiliate network-
    -which includes firms like AQR Capital Management,
    BPEA and Pantheon in alternative assets and other
    products (which accounted for 30% of AUM), Artemis,
    Genesis, Harding Loevner, and Tweedy Browne in global
    equities (39%) and Frontier, River Road, and Yacktman in
    U.S. equities (14%)--had $716.2 billion in managed
    assets."
  • @Observant1 Thanks! I own PARWX and am pleased with the PM's Billy Hwan management of the fund since Jerome Dodson stopped running it. Hwan has added more holdings, reduced fund concentration, and lowered volatility. My spouse owns the ESG BIAWX, about which David and I have written, and so we're well invested there.
  • Well, as long as the new parent doesn't muck with the funds they acquire, I'll rest easy....which it sounds like will/should be the case. If not, I'll be out of there even though PRILX has been fantastic.
  • msf
    edited July 5
    Here's a more detailed history of AMG:
    https://www.referenceforbusiness.com/history2/13/Affiliated-Managers-Group-Inc.html

    Until I checked, I also thought: "Affiliates operate independently" and "AMG invests in independent investment managers and allows them to remain independent". But it surely can't be coincidence that a large number of AMG branded funds had complete management changes and sometimes radical objective changes in or around March.

    M* (human) analysis of parent AMG, Nov 2020: While AMG's stronger affiliates have held up relatively well, net outflows have caused the firm and its affiliates to liquidate or merge subscale offerings, including AMG GW&K US Small Cap Growth and AMG River Road Dividend All Cap Value. In another instance, affiliate Chicago Equity Partners shuttered its business entirely, spurring a subadvisor and name change on AMG GW&K Global Allocation. Recent challenges in AMG's quantitative offerings have contributed most substantially to outflows, with shops such as AQR suffering the most.

    Here's AMG's current 55 fund lineup. Lots of recent "independent" changes this year. Maybe it's a one-off and AMG is done tinkering for awhile. (See more under Brandywine below.)
    https://www.amgfunds.com/products.html

    M* (automated) individual fund analyses:

    Beutel Goodman funds

    ADBLX (formerly AMG Managers DoubleLIne CorePlus Bond Fund, formerly ASTON/DoubleLine Core Plus Fixed Income Fund) - Although this strategy was incepted in July 2011, its listed management team turned over completely two months ago. Therefore, the fund’s historical team data is largely no longer applicable, as it’s not representative of the current strategy.

    APINX (formerly AMG Managers Pictet Int'l, formerly ASTON/Pictet Int'l) - Although this strategy was incepted in April 2014, its listed management team turned over completely two months ago ...

    Brandywine funds(Proxy Statement, April 2021): The proposed changes for the Funds, which have been approved by the Board of Trustees, are part of a strategic repositioning of the AMG Funds complex for greater alignment with AMG, in which each fund not currently subadvised by an AMG Affiliate will be transitioned to an AMG Affiliate subadviser ...

    BRWIX (formerly Brandwine fund) - Even though this strategy’s track record dates back to December 1985, there has been a high degree of turnover on the management side recently, resulting in a thorough overhaul of its listed team two months ago. Therefore, the fund’s historical team data is largely no longer applicable.

    BLUEX (formerly Brandywine Blue) - This strategy underwent a complete overhaul of its listed management team two months ago. And even though their record dates back to January 1991, it's difficult to analyze the new team until they spend more time on the strategy.

    GW&K funds

    MGFIX (formerly AMG Managers Loomis Sayles Bond) - Even though this strategy’s track record dates back to June 1984, there has been a high degree of turnover on the management side recently, resulting in a complete overhaul of its listed team two months ago ...

    MBEAX (formerly AMG Chicago Equity Partners Balanced) - The team that took over this fund in April 2020 lacks proven expertise in several elements of this strategy.

    MGGBX (formerly Managers Global Income Opportunity) - Even though this strategy’s track record dates back to March 1994, there has been a high degree of turnover on the management side recently, resulting in a complete overhaul of its listed team five months ago ...

    MECAX (formerly Managers Cadence Emerging Companies) - This strategy underwent a total overhaul of its listed management team seven months ago. And even though their record dates back to June 1993, it's difficult to analyze the new team until they spend more time on the strategy.

    SKSEX (formerly Skyline Special Equities) - Although this strategy was incepted in April 1987, its listed management team turned over completely five months ago. ...

    ASCTX (formerly ASTON/Silvercrest Small Cap) - This strategy underwent a total overhaul of its listed management team two months ago. And even though their record dates back to December 2011, it's difficult to analyze the new team until they spend more time on the strategy.

    ACWDX (formerly AMG Managers LMCG Small Cap Growth, formerly ASTON Small Cap Growth, formerly ASTON/Crosswind Small Cap Growth) - Even though this strategy’s track record dates back to November 2010, there has been a high degree of turnover on the management side recently, resulting in a complete overhaul of its listed team two months ago. ...

    Harding Loevner - majority owned by AMG, this family has been unscathed.

    (Managers) Montag & Caldwell

    MCTFX (formerly AMG Managers Montag & Caldwell Growth Fund, formerly ASTON/Montag & Caldwell Growth fund) - This strategy underwent a total overhaul of its listed management team two months ago. And even though their record dates back to November 1994, it's difficult to analyze the new team until they spend more time on the strategy.

    Pantheon - CEF, accredited investors only, acquired by AMG in 2010, not worth further investigation

    Renaissance - some funds liquidated: AMG Renaissance Int'l Equity RIEIX (2018), Masters Renaissance Large Cap Equity (2006)

    MLRTX - in 2017, AMG merged its AMG Managers Cadence Capital Appreciation Fund MPRFX into this fund.

    River Road funds

    FQUAX (formerly AMG FQ Long-Short Equity, formerly AMG FQ U.S. Equity) - This strategy underwent a total overhaul of its listed management team two months ago. And even though their record dates back to August 1992, it's difficult to analyze the new team until they spend more time on the strategy.

    CHTTX (formerly AMG Managers Fairpointe Mid Cap, formerly ASTON/Fairpointe Mid Cap) - Although this strategy was incepted in September 1994, its listed management team turned over completely two months ago ...

    TimesSquare - majority owned by AMG since 2004, this family has been unscathed

    Tweedy Browne - majority owned by AMG since 1997, this family has been unscathed. Oddly, AMG lists only one of its funds, TBGVX, in its list of current offerings.

    Veritas funds

    MGSEX (formerly Managers Special Equity) - This strategy underwent a total overhaul of its listed management team two months ago. And even though their record dates back to June 1984, it's difficult to analyze the new team until they spend more time on the strategy.

    MMCFX (formerly AMG Managers Emerging Opp) - [M* human analysis] AMG Managers Emerging Opportunities will soon undergo a complete overhaul under a new subadvisor, changing from a U.S. microcap fund to a China fund. ... As of May 21, 2021, AMG is replacing this fund's three current subadvisors with Veritas Asset Management, a London-based global investing boutique majority-owned by AMG.

    MFQAX (formerly AMG FQ Tax-Managed U.S. Equity, formerly First Quadrant Tax-Managed Equity) - Although this strategy was incepted in December 2000, its listed management team turned over completely zero months ago ....

    BLUEX - see under Brandywine, above.

    Yacktman funds - unscathed


  • edited July 5
    msf said:

    Here's a more detailed history of AMG:
    https://www.referenceforbusiness.com/history2/13/Affiliated-Managers-Group-Inc.html

    Until I checked, I also thought: "Affiliates operate independently" and "AMG invests in independent investment managers and allows them to remain independent". But it surely can't be coincidence that a large number of AMG branded funds had complete management changes and sometimes radical objective changes in or around March.

    AMG is not as hands-off as I once thought.
    The firm replaced third-party subadvisors on thirteen mutual funds earlier this year as part of a broad strategy change. AMG's affiliates will now manage $5B in assets previously subadvised by these third parties.

    "'Over the past two years, we have evolved our global distribution resources and clarified our strategy for the benefit of our affiliates,’ said AMG president and chief executive Jay Horgen. ‘Focusing our US wealth platform exclusively on in-demand strategies from our affiliates will ensure that clients are choosing from highly differentiated products.'"

    Citywire
    AMG Fund Updates

  • @MSF, thanks for that updated info. That doesn't sound very reassuring, and I wonder what that bodes for Parnassus and their shareholders down the road.

  • Parnassus webinar next Wednesday if anyone's interested...

    https://parnassus.zoom.us/webinar/register/WN_A4yHk4IkSxyz_EtxUGtngQ
  • I wonder how long it will take for the management fees to go up.
  • rforno said:


    Parnassus webinar next Wednesday if anyone's interested...

    https://parnassus.zoom.us/webinar/register/WN_A4yHk4IkSxyz_EtxUGtngQ

    Hmm. Characterized as a "strategic partnership."
  • AndyJ said:

    rforno said:


    Parnassus webinar next Wednesday if anyone's interested...

    https://parnassus.zoom.us/webinar/register/WN_A4yHk4IkSxyz_EtxUGtngQ

    Hmm. Characterized as a "strategic partnership."
    I interpret that as typical verbiage for how AMG assimilates things to control.....maybe. *shrug*
  • edited July 7
    rforno said:

    AndyJ said:

    rforno said:


    Parnassus webinar next Wednesday if anyone's interested...

    https://parnassus.zoom.us/webinar/register/WN_A4yHk4IkSxyz_EtxUGtngQ

    Hmm. Characterized as a "strategic partnership."
    I interpret that as typical verbiage for how AMG assimilates things to control.....maybe. *shrug*
    Very possibly porcine lipstick. I'm interested in hearing P. explain it.

  • Really good thread.
  • Reminder the AMG-Parnassus webinar is today....
  • And I spaced it and missed it. The confirmation email didn't say anything about a recording being available later. Rats.

    Takeaways, anyone? TIA, AJ
  • The recording will be available in a few days they said.

    It was 30m and pretty much reiterated the existing press release and FAQs. Emphasis on Parnassus remaning independent in terms of investment management and lots of giddy talk about being 'excited' for this partnership. Both top leaders/PMs signed 10-year employment contracts w/AMG so there's continuity at the top. They didn't announce anything new so ... we'll see.
  • Thanks, @rforno.
  • A bit more about how AMG handled the Brandywine funds (Friess Associates):
    In 2001, Friess Associates facilitated succession from its founder by partnering with Affiliated Managers Group (AMG), making Friess Associates a majority-owned subsidiary of a public company. In the years following the 2008 financial crisis, senior management determined that Friess Associates needed to restructure to better position the firm to meet the long-term needs of clients and employees. Friess Associates and AMG agreed to terms that returned Friess Associates to private ownership in 2013.
    https://friess.com/about/

    The management company regained its independence. But the funds were reorganized into AMG owned funds, technically series of Managers Funds (later AMG Managers funds). Friess Associates continued managing them, becoming the subadvisor.
    https://www.sec.gov/Archives/edgar/data/780253/000089853113000434/fa_497e.htm

    AMG shut down AMG Managers Brandywine Advisors Mid Cap Growth Fund (BWAFX) a year ago.
    https://www.mutualfundobserver.com/2020/05/briefly-noted-45/

    As I noted above, AMG recently fired Friess Associates as the manager of the remaining funds (Brandywine and Brandywine Blue), hired AMG-affiliated managers, renaming and rebranding the funds. Friess Associates did not go quietly.
    Friess Associates, which managed Brandywine Funds on Affiliated Managers Group's (AMG) platform since 2013, [in April] filed preliminary proxy materials with the Securities and Exchange Commission. Reuters reported the firm's plans before the filing, which protests the firm's firing and points out that investors had no say in the termination.

    Friess Associates said that investors are being harmed because their money is no longer being managed the way it was when they first invested.

    The Global Impact Fund [formerly Brandywine Fund] follows an ESG mandate and the Global Real Return Fund [formerly Brandywine Blue] follows a real return strategy including short positions in global index futures.
    https://www.reuters.com/business/finance/fired-fund-manager-friess-battle-amg-over-brandywine-portfolios-2021-04-22/

    The denouement of this tale is that Friess Brandywine Funds FBRWX and FBLUX) just launched a week ago. (This is not a recommendation.)
    https://friess.com/wp-content/uploads/2021/07/BrandywineFunds.pdf

    And the coda is that the founder, Foster Friess, just died last May.
    https://www.nytimes.com/2021/05/28/us/politics/foster-friess-dead.html
  • AMG seems to get more than it bargained for in the case of some of its acquisitions. Its purchase of Third Avenue didn't turn out too well either, and I wonder what role AMG may have played in personnel shakeups there. Of course these debacles aren't mentioned in "The Boutique Advantage" on AMG's website.
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