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Momentum buys R12.9bn worth of investor funds

Acquisition of UK-based Seneca Investment Managers increases assets under management to R101bn.
The transaction looks like a case of Momentum buying some clients' funds - rather a lot. Image: Moneyweb

Momentum’s international investment management division, Momentum Global Investment Management (MGIM), has reached an agreement with the founding members and shareholders of Seneca Investment Managers to acquire the investment management business for an undisclosed amount.

Momentum responded to queries about the purchase price and terms of the transaction, such as the usual guarantees relating to profitability of Seneca and its ability to retain clients’ funds, by saying the information is confidential.

Seneca is based in Liverpool in the UK and also has an office in London. According to a press release issued simultaneously by Seneca in the UK and Momentum in SA, the acquisition will significantly enhance the growth potential of the combined business in the UK and in other global markets where Momentum operates.

Seneca, founded in 2002, has more than £600 million under management, largely housed in a range of equity funds. The acquisition of Seneca will increase MGIM’s total assets under management by nearly 15% to £4.7 billion (equal to roughly R101 billion at the current exchange rate).

Read: The logic in holding global bonds

While the press release refers to a “combined” business and being a “partner”, the transaction looks like a case of Momentum buying some clients’ funds, as asset management companies are prone to do from time to time.

The difference is that it is quite a large transaction.

Jeanette Marais, CEO of Momentum Investments and chair of MGIM, says the acquisition will provide MGIM with growth opportunities in a large investment market. “The transaction brings together two successful multi-asset management businesses that will provide a stronger offering and broader capabilities for our clients in SA and globally.

“We are pleased that we share a culture of building partnerships with financial advisors, discretionary fund managers and wealth managers, which will bode well for the growth of the strengthened company,” says Marais.

Single seamless team

“Once the deal has received regulatory approval, we will continue to use the team-based approach that both businesses follow today. We will create one seamless team which will collaborate effectively on all investment matters.

“The members of the enlarged investment team will maintain their current areas of focus and will be able to contribute to the broader research and investment effort of the business,” says Marais.

The deal brings together Seneca’s UK presence with MGIM’s global client base to offer products domiciled in the UK, Luxembourg and Guernsey. It will provide clients of Momentum Investments, specifically Momentum Wealth International, with more investment options, according to Momentum.

The transaction will combine the VT Seneca Funds and the Seneca Global Income & Growth Trust plc with MGIM’s three funds and its range of seven managed model portfolios to enlarge investors’ choice.

The Seneca funds will assume the Momentum brand but will continue to use Seneca’s fund names.

Thus, the Seneca Diversified Growth Fund is likely to become Momentum Diversified Growth Fund.

“These changes are dependent on following due process with regards to client communication and, of course, relevant regulatory approvals,” says Marais.

Seneca profile

Seneca looks like an interesting asset manager. According to its website, it specialises in multi-asset investing which combines traditional securities (equities and bonds) with non-traditional specialist investments (property, private equity and specialist financial and infrastructure investments).

“Our investment approach differs in that we make decisions using a value investing ethos,” says Seneca.

“We believe this approach makes it easier to achieve investor objectives and offers the prospect of superior long-term returns and avoidance of permanent loss of capital.”

It describes its investment process as one of setting out a framework for assessing the intrinsic value of stocks, then buying only shares that are trading at prices below the intrinsic value.

Seneca uses the same principles to assess different asset classes, to select stocks, and when picking third party funds. It also chooses to invest in other asset managers that employ the same value investing techniques.

“Our value investing approach means that our funds are actively managed and different, both from common benchmarks and from the competition,” Seneca advises its clients and prospective clients.

The firm runs seven unit trusts, as well as a private investment trust.

The latter, Seneca Global Income & Growth Trust plc, looks very interesting with 34% of assets invested in smaller UK stocks and 22% invested in equity funds with a bias towards the Far East. Nearly 28% of the assets comprise specialist investments.

Ferdi van Heerden, CEO of MGIM, says the two investment teams complement each other well. “The acquisition will enable MGIM to meet the growing demand for multi-asset investment solutions from advisors, discretionary fund managers and their clients.”

He adds: “The combined business creates a strong foundation on which to accelerate our growth as an investment solutions provider to the UK advisor market and service our growing national client base.”

Read: Momentous earnings drop for Momentum

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I think I have seen this movie before. Question that needs to be answered is why is the asset manager up for sale and why don’t any of the big UK firms buy it?
Hope this is not another case of a struggling ZA firm wanting to diversify and not understanding the business that they are buying.

Here we go again.

End of comments.

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