Strategic Investment Group Sells Majority Stake

Private-equity firm Friedman, Fleischer & Lowe has purchased a majority stake in institutional-investment outsourcing firm Strategic Investment Group.

(August 13, 2012)-West Coast private-equity firm Friedman Fleischer & Lowe has purchased a majority stake in Virginia-based Strategic Investment Group.

Strategic, an industry leader in the investment-outsourcing business with $28 billion in assets under management as of December 31, 2011, has long been thought to be looking to sell a stake in its business. The sale is effective as of July 31, 2012, aiCIO has learned.

Hilda Ochoa-Brillembourg, formerly of the World Bank pension fund, founded Strategic in 1987 along with other senior employees of the pension. The firm won aiCIO’s 2011 Industry Innovation Award for its work in the investment outsourcing space.

According to its submission to the 2012 aiCIO Investment Outsourcing Buyer’s Guide, the firm had full discretion over manager selection for 65% of its assets. At the time of the Guide’s publication in February 2012, Strategic had 57 clients. Corporate pension assets made up approximately 57% of the firm’s total assets under management; foundation assets made up 25%; public pension, endowment, and insurance general account assets made up the remainder.

For more stories like this, sign up for the CIO Alert newsletter. 

The firm’s asset under management had doubled since 2007, with large growth seen in both the corporate pension and foundation sectors, according to its submission.

San Francisco-based Friedman Fleischer & Lowe was founded in 1997, closing its first fund of $333 million in 1999. It has since raised two other funds in 2004 ($811 million) and 2008 ($1.5 billion).

Investment outsourcing, surveys show, is a business with growing strategic importance among asset owners and asset managers. According to the 2012 aiCIO Investment Outsourcing Survey, lack of internal resources, additional fiduciary oversight, and better risk management are all leading to an increased demand for these services.

Among the firms participating in the Buyer’s Guide, assets under management where the outsourcing firm achieves “full discretion over manager selection” is up 283% since 2007.

Manhattan-based Kudu Advisors acted as the investment bank representing Strategic Investment Group in the deal. Kudu is led by Asset International founder and former CEO Charlie Ruffel. Asset International is the parent company of aiCIO.

Representatives of Strategic could not be reached at press time.

(August 13, 2012) — Emerging market fund managers are shifting from the traditional consumer growth story for returns, as investors have pulled out developing nations and created a vicious circle of losses by selling on downward movement.

Funds that had previously bet on the rise in general domestic consumption in emerging markets have moved into discretionary and technology stocks to reflect changes in the local markets, research from S&P Capital IQ said this week.

China has seen the largest movement of this kind, the research teams at S&P said, with fund managers moving “sizeable allocations” to IT and telecoms, and other internet-related stocks, most of which have shown strong growth over the past 12 months.

The research note from S&P Capital IQ said: “Despite the vast majority of managers remaining confident that emerging economies will continue to grow at a faster rate than their developed market counterparts, the period represented a period of significant risk aversion for equity investors.”

For more stories like this, sign up for the CIO Alert newsletter. 

Uncertainty about economic recovery in the Eurozone and the presidential elections looming in the United States fuelled some of this risk aversion, S&P said.

S&P reported that investors pulling assets out of emerging market funds had in some cases, exacerbated poor performance, as managers were forced to sell into falling markets to meet client redemptions.

The choices made by the emerging market consumer is likely to play on the minds of investors and fund managers for some time yet, Raiffeisen Capital Management said today.

A note from the European asset manager said: “In recent months, prices for corn, wheat and soya have already risen sharply and in light of the poor harvest prospects it is more likely that prices will continue to rise rather than fall. As food accounts for a particularly high proportion of consumer spending in the Emerging Markets and food price developments are reflected strongly in inflation rates, this could result in numerous challenges for the emerging market economies.”

Higher spending on food reduces the income available for spending on other consumer goods, and resulting inflationary pressure makes it more difficult for central banks to stimulate the economy by cutting interest rates, Raiffeisen said. “Finally, it is important to recall that massive increases in food prices threaten the very lives of many people in the emerging markets and can thus also have a major impact on domestic politics.”