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Guggenheim Would Quintuple With Units From Deutsche Bank

Alan D. Schwartz
Alan D. Schwartz, executive chairman of Guggenheim Partners LLC, chairman of the Robin Hood Foundation, and former chief executive officer of Bear Stearns Cos. Photographer: Andrew Harrer/Bloomberg

Guggenheim Partners LLC, the U.S. firm seeking to acquire Deutsche Bank AG’s asset management businesses, would quintuple in size with the deal, enabling it to better compete against the biggest global investors.

Guggenheim, with $125 billion (93 billion euros) under management, would surpass $660 billion if it buys units of Frankfurt-based Deutsche Bank with almost 400 billion euros ($539 billion) of assets. At that size Guggenheim would be comparable to managers Legg Mason Inc. and Franklin Resources Inc., which had $631 billion and $704 billion as of Jan. 31.

Deutsche Bank said yesterday it is holding exclusive talks to sell its asset management divisions to Guggenheim. Guggenheim, which is based in New York and Chicago, had been competing with firms such as Macquarie Group Ltd. of Australia to buy the units, according to people familiar with the process. Pulling off such a major purchase and integrating the pieces wouldn’t be easy, said Michael Rosen, chief investment officer of Angeles Investment Advisors LLC.

“There haven’t been many deals on this scale that have been successful,” Rosen said in a telephone interview from Santa Monica, California. “Instilling and maintaining a single investment culture is very tricky.”

The units for sale include DB Advisors, an institutional money-management unit with 163 billion euros in client assets; Deutsche Insurance Asset Management, which oversees 142 billion euros; the RREEF unit, which specializes in real estate and infrastructure investments and manages 45 billion euros; and DWS, with about 42 billion euros in the Americas.

Firm’s Roots

Guggenheim Partners is connected to the family of Meyer Guggenheim, a tailor of Swiss-Jewish background who came to the U.S. in the 1840s and made a fortune in mining and smelting. The Solomon R. Guggenheim Museum in Manhattan is named for one of his sons, a philanthropist.

In 2000, Peter Lawson-Johnston Sr., a great-grandson of Meyer Guggenheim, used family money to start the company, which has evolved into a financial services firm that manages money and provides investment banking services. The firm is led by Chief Executive Officer Mark Walter. Alan Schwartz, former CEO of Bear Stearns, is executive chairman.

Guggenheim Capital LLC, the majority owner of Guggenheim Partners, has raised money from outside investors including Sammons Enterprises Inc., a Dallas-based company, according to Sammons’ website. The closely held Sammons, which has interests in industrial products, insurance and travel, doesn’t disclose the size of its investment in Guggenheim, Theresa Badylak, a spokeswoman, said in a telephone interview.

Series of Acquisitions

K1 Ventures Ltd., based in Singapore, agreed in June to invest $100 million in preferred stock and warrants of Guggenheim Capital, Guggenheim said at the time.

Guggenheim’s asset management business has grown through a series of acquisitions. In February 2010, it agreed to buy Security Benefit Corp., whose holdings included an asset management business with $22 billion. In July 2009, it bought Claymore Group of Lisle, Illinois, which at the time oversaw $12.9 billion in exchange-traded funds and other assets. In January, Guggenheim sold its interest in Claymore Canada to New York-based BlackRock Inc., the world’s largest asset manager with $3.5 trillion.

Guggenheim managed $78 billion in fixed-income assets as of Sept. 30, the firm said in a January news release.

Fixed-Income ‘Expertise’

Guggenheim has “substantial expertise” in managing fixed-income assets for insurance companies, Rosen said, a business he described as a specialty because it involves handling taxable money. Institutional investors such as pension funds and endowments typically don’t pay taxes, he said.

Deutsche Bank competes in the same business, Rosen said.

“This could be an area where they overlap and might be a good fit,” he said. BlackRock and Boston-based Wellington Management Co. also compete in the same field.

Guggenheim and Deutsche Bank both have a “quantitative bent” to some of their investment products, said Neil Rue, managing director of Portland, Oregon-based Pension Consulting Alliance Inc.

In a telephone interview, Rue described Deutsche Bank’s RREEF unit, which invests in real estate for institutions, as a “very well-known” competitor in its field.

DWS Investments, which manages mutual funds, traces its history to Scudder Stevens and Clark, founded in 1919, which created the first mutual fund to invest solely outside the U.S., according to the DWS website.

Investor Redemptions

Laura Pavlenko Lutton, an analyst at Chicago-based Morningstar Inc., described DWS as a “scotch-taped together fund company” assembled through mergers.

“They’ve also had their challenges on the performance side,” she said in a telephone interview.

DWS has suffered redemptions every calendar year since 1998, Morningstar data show. Investors pulled $2 billion from the firm’s mutual funds in the 12 months ended Jan. 31. With $47 billion in mutual funds, DWS ranks 35th in size among U.S. mutual fund companies, Morningstar estimated.

Investors withdrew $135 billion from domestic stock mutual funds in 2011, the fifth straight year of withdrawals, according to the Washington-based Investment Company Institute.

Deutsche Bank plans to hold onto its DWS mutual fund units in Europe and Asia.

Last year was the worst in the last five for mergers and acquisitions in the global asset management business, according to a February report by PwC, a New York-based global accounting and consulting firm. Activity may pick up this year as European banks, under pressure to improve capital ratios, sell their asset management businesses, PwC said.

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