June 27 (Bloomberg) -- TPG Inc. and Kohlberg Kravis Roberts & Co. are among private equity firms capitalizing on the credit crunch to invest in money managers, a trend that may accelerate as more cash-strapped companies exit the business.

American Airlines parent AMR Corp., raising money after two quarterly losses, attracted the interest of more than a dozen suitors when it tried to sell its mutual fund unit this year. Pharos Capital Group LLC and TPG eventually agreed to pay $480 million for it in April. KKR bought a $1.25 billion stake in Legg Mason Inc. in January to restore the firm's capital after fund losses triggered by subprime-mortgage delinquencies.

Leveraged buyout firms ``all want to do an asset manager deal,'' said Joseph Hershberger, a banker at Zurich-based Credit Suisse Group who specializes in advising money management firms. ``In an environment where it's hard to get financing, on the margin, you're going to be more attracted to getting a good return from growth-oriented investments, which is what asset managers are,'' he said.

Private equity companies have invested in 33 asset managers since Aug. 1, when LBOs started to dwindle, a 10 percent gain from the same period a year earlier, according to Jefferies Putnam Lovell, a unit of New York-based Jefferies Group Inc. In the same period, private equity deals across all industries fell 12 percent to 2,188, data compiled by Bloomberg show.

``Private equity's interest in asset managers has not slowed down and won't,'' said Aaron Dorr, a New York-based banker at Jefferies Putnam Lovell. Dorr's deals include advising Allianz SE of Munich on its $3.3 billion purchase in 2000 of Pimco Advisors Holdings LP, the biggest U.S. bond fund manager.

`Family Silver'

Regional banks with asset-management units that might appeal to buyout companies include Fifth Third Bancorp, KeyCorp and National City Corp., said Jeff Davis, an analyst at FTN Midwest Securities in Nashville.

``A sale would have the ring of selling the family silver'' because the units have high margins and stable earnings, Davis said. ``But if a bank like National City needed to come up with some equity, asset management units could be sold for a premium and not discounted like a loan portfolio.''

Comerica Inc., the Dallas-based commercial banking company, sold its Munder Capital Management mutual fund unit for $302 million in 2006 to a buyout group led by Crestview Partners LP. The biggest leveraged buyout of an asset manager is last year's sale of Chicago-based Nuveen Investments Inc., the largest U.S. closed-end fund company, to a group led by Madison Dearborn Partners LLC for $5.75 billion.

Hedge Funds

Blackstone Group LP, the manager of the world's largest buyout fund, acquired hedge-fund manager GSO Capital Partners LP of New York for as much as $930 million in March to offer clients access to distressed debt and leveraged-loan investments as well as LBOs.

``Private equity firms don't want to be completely dependent on one business any longer,'' Carlyle Group co-founder David Rubenstein said at an industry conference in Boca Raton, Florida, on June 4.

Asset Allocation & Management Co. in Chicago, which helps insurance companies manage investments, sold a majority stake to Stone Point Capital of Greenwich, Connecticut and KBW Capital Partners in December. Stone Point invests in financial companies including insurers.

``We remained autonomous, which was a major benefit,'' said Joel Cramer, director of sales and marketing at AAM, which has $16 billion in assets under management. ``With strategic backing from private equity, we can also give our clients greater depth in areas like reinsurance or capital markets.''

`Broad Brush'

In other cases, buyers are betting the companies are being unfairly punished by a U.S. housing slump and credit-market contraction that lowered stock prices across the financial- services industry.

``There's a broad brush of negativity that impacts the whole sector, but looking at the fundamentals of the asset management business, we believe it's a sound business,'' said Kneeland Youngblood, co-founder of Dallas-based Pharos.

Some private-equity executives have avoided asset-management deals because the companies typically depend on a small number of money managers whose departures would hurt the business, said Donald H. Putnam, founder of Grail Partners LLC, a San Francisco- based merchant bank. That attitude is changing as deals in other industries grow scarce and private equity firms themselves become diversified asset managers, he said.

``These guys think they understand the business better today,'' Putnam said.

To contact the reporters on this story: Zachary R. Mider in New York at zmider1@bloomberg.net; Jonathan Keehner in New York jkeehner@bloomberg.net

Last Updated: June 27, 2008 05:49 EDT