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Dreams and Night Sweats: The Shape and Future of Money Management
Donald H. Putnam
Darlene T. DeRemer
Grail Partners LLC
May 11, 2006
Page 1
Catalysts: Current Inflection Points in Asset Management
� MBO / LBO / New Financing
� IPO / Reverse Mergers
� PROLIFERATION
� PE Firms are Awash in Cash
� Public Markets are Eager
� Globalization a Failed Model
Market Factors
� Resurgence of the Global Banks
� Brokers go for Distribution
� Alternative Crossover
� MONGRELIZATION
� Failure of Style Allocation
� Death of DB, Triumph of DC
� Segregated Alpha / Beta
� The “New” Quants
Institutional
ConsequencesCatalysts
� Resurgence of Global Banks
� Brokers Chose Distribution
� MATURATION
� Ownership is optics: Capacity is Key
� Ageing PE Founders
� RE Continues to Evolve
Alternative
� Divestiture
� Fund Adoptions / Mergers
� Open Architecture
� CONSOLIDATION
� Scale challenges
� Conglomerate illogic
� Transparent Performance
� ETFs and Quant Lifestyle
� New Paradigm Distribution
US Retail
The Big Picture
Page 2
An Owner’s First Challenge is Strategy
The Big Picture
WEAKProduct
SUPERB Product
Sharpen incentives for alpha
Enforce absolute transparency
Create a fiduciary culture
Build research edge
Innovative in risk mgmt
Control price vs. capacity
Aggressively solicit channels
Select the best partners
Over-support sales activities
Deploy capital aggressively
Never grant exclusivity
Over-communicate and over-service clients and channels
GLOBAL or BROAD Channels
NARROW or LOCAL Channels
Page 3
Lessons From the Past
Source: SNLFinancial, Nelson’s, Institutional Investor
The Big Picture
($ in millions)
Rank Firm Name 2005
1 Barclays Global Investors $1,513,000
2 State Street Global Advisors 1,441,000
3 Fidelity Investments 1,207,000
9 Capital Group 1,142,000
4 BlackRock Inc. 991,000
5 Vanguard Group, Inc. 951,000
6 Legg Mason Inc. 850,800
7 JPMorgan Asset Management 847,000
8 Mellon Financial Corporations 781,000
10 AXA Group 690,000
Rank Firm Name 1995
1 Fidelity Investments $426,742
2 Prudential 271,500
3 Mellon Financial Corporations 251,713
9 State Street Global Advisors 231,722
4 JPMorgan Asset Management 227,416
5 Capital Research 216,909
6 Equitable Cos 205,000
7 Bankers Trust 202,168
8 Metropolitan Life 171,594
10 Travelers 166,346
Page 4
Perform, Gather, Grow: Simple…?
Source: Morgan Stanley as of November 22, 2005
� Performance drives flows and flows drive valuationThe Big Picture
Page 5
5 Year Outlook: Continued Fragmentation; Opportunities Everywhere
� Open architecture expands shelf space and product offerings
� The rollover boom
� Retirement income focus
� Separate accounts to mainstream
� Explosion in alternatives
� New advisory models
� Global opportunities emerge
Source: Empirical Research, Federal Reserve Board, US Department of Labor, Employee Benefits Institute, Cerulli Associates, Investment Company Institute, NAVA, VARDS, FIDC, Venture Economics, Hedge Fund Research, TASS Research, NUCUBO, The Foundation Center, Holmes Research, College Savings Plan Network, Insurance Asset Manager Survey, Corporate Reports, Grail Partners Estimates
0.0 2.0 4.0 6.0 8.0 10.0
College Savings Plans
Insurance Co. Outsourcing
Foundations & Endowments
ETFs
Hedge Funds
Private Equity
Bank Personal Trusts
Variable Annuities
Separate Accounts
Retail MFs
IRA Accounts
DC Plans
DB Plans
Other Assets: 8.9% annually to $2.4 trillion
Retail Assets: 9.3% annually to $14.9 trillion
Retirement Assets: 6.8% annually to $16.2 trillion
2005 Assets 2010 Assets
Projected Industry Growth
AUM ($ trillions)
CompoundAnnual Growth
12%
9%
9.5%
9%
11%
9%
4%
9%
7.5%
20%
8%
9%
2%
Product Perspectives
Page 6
Financial Assets by Affluence and Asset Type - $21T total 2004
Product Perspectives
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
Mass Mrkt Retail Affluent HNW
($ billions)
Cash, CDs, MMFs Bonds Stocks
Mutual Funds NEC IRAs and DC Plans Other Managed
Other
Source: ICI, FRB, Census Bureau, ICI, SIA. Includes long and short term mutual funds and VAs; excludes assets in bank trusts, inst MMFs and other institutional assets. Thomas H Mack & Co., Bobroff Consulting, Grail Partners
Page 7
Product Mix Today
Source: ICI, MMI, Others, Grail Partners, Thomas M. Mack & co. and Bobroff Consulting estimates.
� Mutual Funds remain the dominant product solution
Asset Management Industry:
$11 Trillion in AUM
Product Perspectives
Funds DC Plans
17%
Funds VA-
Nonqual
7%
Funds
Corporations
5%
Funds all other
52%
Managed
Accounts
6%
Hedge Funds
10%
ETFs
3%
Page 8
3-Yr CAGRS by AM Sector
� Hedge Funds, SMAs, and ETF growth outpace traditional mutual funds
Historical Three-Year CAGRs
14%
16%
22%
40%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
US Mutual Funds Hedge Funds SMAs US ETFs
Product Perspectives
Source: Simfund, HFR, ICI, Cerulli, Grail Partners.
Page 9
Source: Grail Partners LLC
All Roads Lead Through Platforms
Distribution Dynamics
Investment Management Platform
Equities Fixed Income Nontrad. Investments Policy Ancillary
Services
Investment Products
Distribution Outlet
Lgecap
Growth
Smcap
Grow
Intl.
Eq
Rate
Antic.
Qual
Spds
Intl.
F I
Real
Est
Nat
Res
Strat
AA
Tactl
AA
Actuary-
Demogr.
Custody-
Trust
Record-
keeping
Perf
Anal
Assembly
Separate
Accounts
Mutual
Funds
Trust
Pools
Variable
Life prodFoFs
Bundled
Ret plns
Retail
Dir mkt
Brokers Planners Bankers Insur
Agents
Retirement
Plan Sponsors
Found-
Endow
End Consumers
Distribution
Consultants
PEHedge
� Structure of the investment management business
Page 10
Major Packaged Investment Product Segments
Source: ICI, FRB, Census Bureau, ICI, SIA. Includes long and short term mutual funds and VAs; excludes assets in bank trusts, inst MMFs and other institutional assets. Thomas H Mack & Co., Bobroff Consulting, Grail Partners
Standard
Load/ No-Load
DC Plans
Fund WRAP
and Marts
Managed
Accounts
$0
$5,000
$10,000
$15,000
$20,000
$25,000
2005 2015
($ billions)
Standard Load/ No-Load DC Plans
Fund WRAP and Marts Managed Accounts
31%59%
Distribution Dynamics
Page 11
Advice-Based Distribution Is the Retail Way
� Advisors gaining share of investable assets as direct sold continues to decline
Distribution Dynamics
Source: ICI and Cerrulli, adapted from LPL Financial Services.
US Mutual Fund Assets Under Management - Direct
Purchased vs. Advisor-Sold %
Advisor
69%
Advisor
80%
Direct
31%
Direct
20%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1998 2005
Page 12
UMA Platform Schematic
Distribution Dynamics
Source: Dover Financial Research
Unified Managed Account
• Single Account
• Single Registration
•Multiple products
Investments
Overlay Portfolio Management
• Active
• Passive
• Hybrid
Manager A
Manager B
Manager C
Fund A
Fund B
Fund C
ETFs
Other
SMA MF Alternative Products
Range of Overlay Capabilities
• Tax management
• Rebalancing
• Wash sales
• Customization
• Other
Account Attributions
• Single proposal system
• Client assessment
• Product neutral fee
• Consolidate performance reporting
UMA Platform
Page 13
Platform Growth = Pricing Power
� Distributors capturing increasing share of fees away from manufacturers
Distribution Dynamics
Source: LPL Financial Services.
Managed Accounts
Distribution
Share
67%
Distribution
Share
76%
Manufacturer
Share
33%
Manufacturer
Share
24%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2004
Page 14
U.S. Retirement Plan Assets, 1995-2004
Source: Federal Reserve Flow of Funds, 1995-2004, and EBRI Pension Investment Report
1.44
1.54 1.78 1.95
2.09
1.95
1.71
1.44
1.72 1.87
1.31 1.52
1.85
2.11 2.27
2.3
2.12
1.82
2.25
2.55
1.29 1.47
1.73
2.15
2.65
2.63
2.62
2.53
3.08
3.48
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
$ Trillions
Defined Benefit Defined Contribution IRA
1997 was cross-over
year for DC dominance
1998 was cross-over year
for IRA dominance
Retirement Realities
Page 15
Source: Grail Partners LLC
Accumulation
� Annuities (fixed, immediate, variable)
� Fixed income
� Insurance, LTC
� Charitable remainder trusts
� Draw-down of accumulated assets to generate income
� Preparation for final years and wealth transfer
� Retirement years
� Drawing on health care provisions
� Gifting, bequeathing remaining wealth
� Gains need to be preserved
� Concentrated stock positions need to be hedged
� Asset protection is primary concern
� Focus almost solely on managing/growing assets
� Modular or needs-based planning (education planning, home purchases, etc)
Goals
� Fixed income instruments
� Non-correlated structured products, hedge FOFs
� Mid 50s until retirement
� Long-term care
� Insurance products for tax-advantaged wealth transfer
� Funds, separate accounts, ETFs, etc
� IRA, 401(k), 529
Products & Vehicles Used
� Generational/ spousal transfer
� Working age up to mid 50s
Description
� Annuities (fixed, immediate, variable)
� Fixed income
� Insurance, LTC
� Charitable remainder trusts
� Draw-down of accumulated assets to generate income
� Preparation for final years and wealth transfer
� Retirement years
� Drawing on health care provisions
� Gifting, bequeathing remaining wealth
� Gains need to be preserved
� Concentrated stock positions need to be hedged
� Asset protection is primary concern
� Focus almost solely on managing/growing assets
� Modular or needs-based planning (education planning, home purchases, etc)
Goals
� Fixed income instruments
� Non-correlated structured products, hedge FOFs
� Mid 50s until retirement
� Long-term care
� Insurance products for tax-advantaged wealth transfer
� Funds, separate accounts, ETFs, etc
� IRA, 401(k), 529
Products & Vehicles Used
� Generational/ spousal transfer
� Working age up to mid 50s
Description
PreservationRetirement Income
Wealth Transfer
Investor Lifecycle Affects Financial Product Needs
Retirement Realities
Page 16
Pay-As-You-Go: Gone…
� Increase in retirees will spur a large "money in motion" eventRetirement Realities
Source: The Retirement Journey.
Retirement Asset Annual Distributions ($ billions)
DC Plans,
$224
DC Plans,
$546 IRAs, $152
IRAs, $378
DB Plans,
$131
DB Plans,
$162
$507
$1,086
$0
$200
$400
$600
$800
$1,000
$1,200
2004 2012E
Page 17
The Pieces of the Puzzle
Defined BenefitSystem
Defined ContributionSystem
Income
Wealth Accumulation
Liability/Cost Burden
Cost Efficiency
Plan Sponsors ParticipantsRetirementSolutions
Retirement Realities
Page 18
Manufacturing Retirement Solutions
DC
Annuity
DB Individual Pension Account
Defined Contribution
Defined Benefit
Investment Choice
Variable Benefit
Single Offering
Fixed Benefit
� Existing parts are being used to create new guaranteed income (e.g. Personal Pensions) investment solutions within the definedcontribution system and we expect this trend to continue
Retirement Realities
Page 19
What Does The Future Hold for DC?
Future Defined Contribution Menu
CoreMenu
LC SC Intl BD Cash
Accumulation
Traditional
Deferred
Forward Income Solutions
Variable
Income For Life
Insurance
Managed PensionSolutions
Income Level
IncomeLevel
Individual Pension
Managed
� Potential new plan designs: Retirement Realities
Page 20
Dire Straits
Retirement Realities
Estimated Decrease in Balance Sheet due to Accounting Changes (before taxes)
-$31.6
-$16.9
-$11.4
-$10.3
-$10.1
-$1.8
-$8.6
-$4.7
-$4.6
-$4.5
-35 -30 -25 -20 -15 -10 -5 0
General Motors ($15.6)
IBM ($33.1)
Boeing ($11.1)
General Electric ($11.7)
Ford ($14.0)
AT & T ($54.7)
Lockheed Martin ($2.8)
DuPont ($9.4)
Verizon ($66.4)
Lucent Technologies ($0.4)
$ billions
Company 2005 Shareholder’s Equity
Pension Expense/(Income) and Contributions
(20,000)
(10,000)
-
10,000
20,000
30,000
40,000
50,000
60,000
2000 2001 2002 2003 2004 2005
$ millions
Employer Contributions Pension Expense/(Income)
Page 21
Though Hedge Growth Continues, FoHF Growth May Moderate
Source: HFR, Grail Partners estimates.
� Total HF industry assets have grown at a CAGR of nearly 20% since 1998
� FoHF AUM year-over-year growth has dropped dramatically, and is expected to continue to decline
Hedge Funds
Hedge and FoHF AUM
$2,500
$2,175
$1,880
$1,655
$1,445
$1,230
$973$820
$622$536
$488$456$375
-$500
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E
($ billions)
-20%
0%
20%
40%
60%
80%
100%
120%
Year-over-Year FoHF Growth
FoHF AUM HF AUM (excl. FoHF) FoHF YoY Growth
Page 22
…as Institutional Hedge Allocations Go Direct and Multi-Strat
Source: Grail Partners
� Also, we expect the most sophisticated investors will go direct and
to multi-strat
� One layer of fees; no sign of abating
� Direct access, but still limited transparency
� Convergence of quantitative long only capabilities and hedge
� FoHFs will intermediate investments in esoteric or niche hedge
funds
Hedge Funds
Pension Allocations to Hedge
150 170 180 190 200 200
110
160200
230300
400
40
70
110
170
250
350
$300
$400
$490
$590
$750
$950
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2005E 2006E 2007E 2008E 2009E 2010E
($ billions)
FoHF Direct Multi-Strategy
Page 23
Convergence
Index / Structured Products
Hedge Funds
Mutual Funds Traditional Asset Management
Exchange Traded Funds (ETFs)
Hedge Funds
Discounters wer
Investment & Commercial Bankers; Traditional Brokers
Private Equity / Debt
Synthetic Products
Source: The Carlyle Group.
Page 24
Working Out How Best to Integrate Hedge Funds
Assist with asset allocation
Alternate Routes
Hedge Funds
Recommend manager mix
Manager visits with client
Recommend strategy mix
Deployment of Invesment
Assist choose hedge fund portfolio benchmark
Specify hedge fund portfolio objective
Review portfolio from risk perspective
Understand overall investment context
Understand overall investment objective
Iterative Process
Page 25
Hedge Fund Performance Estimates
Source: Grail Partners
Hedge Funds � During the bear market, Hedge Funds were able to preserve capital
� In recent years, Hedge Fund returns have had difficulty outperforming the S&P 500
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06
Rolling Twelve Month Returns (%)
Hedge Fund Index of Indices S&P 500
Page 26
Volatility
Source: Grail Partners
Hedge Funds
0
5
10
15
20
25
30
35
40
45
50
Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06
VIX Monthly Closing Price
� The environment is becoming increasingly difficult, with lower volatility and increasing competition
� Is alpha being arbitraged away?
Page 27
Select Hedge Transactions
Source: Grail Partners LLC
Acquired
Date Target Acquirer AUM ($mm) Type
1/06 International Asset Management ABN AMRO Holding NV $2,600 FoHF
2/06 NewFinance Capital LLP Schroders 2,500 FoHF
3/06 Liberty Ermitage Jersey Limited MBO 2,409 FoHF
4/06 PMA Capital Management SPARX 2,100 FoHF
2/06 Capital Management Advisors EFG International 1,606 FoHF
4/06 HFA Holdings IPO 1,582 FoHF
3/06 Absolute Capital Management IPO 1,085 HF
1/06 Austin Capital Management Victory Capital Management 900 FoHF
4/06 Fortune Group Close Brothers 800 FoHF
Acquired
Date Target Acquirer AUM ($mm) Type
9/05 Global Asset Management Julius Baer $53,672 FoHF
6/05 Permal Group SCA (80%) Legg Mason 20,000 FoHF
11/04 AQR Capital Management (20%) Affiliated Managers Group, Inc. 12,231 HF
6/04 Deerfield & Company LLC (64%) Triarc Companies, Inc. 8,041 HF
5/04 Numeric Investors L.P. (48%) TA Associates 7,500 HF
9/04 Highbridge Capital Management J.P. Morgan & Co. 7,300 HF
8/05 Coast Asset Management (33%) Summit Partners 5,500 FoHF
6/04 Evaluation Associates Capital Markets Mellon Financial Corporation 4,548 FoHF
11/04 Fauchier Partners BNP Paribas Asset Management 3,500 FoHF
12/05 Guggenheim Alternative Asset Management (71.5%) Bank of Ireland 3,200 FoHF
Since YE 2002
YTD 2006
Hedge Funds� Strategic considerations often thwarted by pricing challenges: pricing disconnects often reflective of broader issues
Page 28
Money Management M&A: Recent Past, Present, Future
Present and Near Future – Why the M&A Boom?
Recent Past – Why the M&A Lull?
� Many retail conglomerates need to be undone
� Institutional needs to be in the right capital structure in a period of significant change and challenge
� Alternatives are a huge opportunity for banks and other buyers
� New people in the boardroom of buyers
� Sellers have choices and incentives to act
� Capital is plentiful and business margins are good, but the real challenges are real so risks can be shifted
� Too much regulatory risk – in retail
� Too much market share rotation –in institutional
� Too much novelty in alternatives
� Too much boardroom transition at buyers
� Too much bipolar disease at sellers
� UNCERTAINTY and CERTAINTY are both enemies of M&A
M&A and Pricing Trends
Page 29
Money Management M&A Activity
Source: SNL Financial, Company Reports, Grail Partners LLC
M&A and Pricing Trends
20 Largest Transactions Since YE 2002Acquired
Date Target Acquirer AUM ($mm) Type
2/06 Merrill Lynch Investment Managers BlackRock Inc. $539,000 Div
6/05 Citigroup AM Legg Mason 437,000 Div
5/05 Nextra Investment Management (65%) Credit Agricole 126,126 MuFu
3/05 Nuveen Investments Secondary IPO 118,505 MuFu
7/04 F&C Group ISIS Asset Management plc 104,104 Inst
9/05 SBC Wealth Management & GAM Julius Baer 96,772 PvtCl
7/05 Deutsche AM (London & Philly Ops) Aberdeen Asset Management plc 81,270 Inst
6/03 Threadneedle Asset Management American Express 74,844 Div
10/04 Nikko Asset Management (38%)Warburg Pincus, the Government of Singapore Investment
Corp. (GIC) and Nikko Principal Investments65,000 Inst
7/03 Neuberger Berman Inc. Lehman Brothers Holding Inc. 63,700 Div
4/06 Piper Jaffray Private Client Business UBS AG 52,000 PvtCl
8/04 State Street Research BlackRock Inc. 52,000 Inst
9/05 WestAM (less Brightwater) (50%) Mellon Financial Corporation 48,516 Inst
7/04 Pareto Partners (70%) Mellon Financial Corporation 38,000 Inst
11/04 Baring Asset Management MassMutual Financial Group 34,840 Inst
5/04 Strong Financial Corp. Wells Fargo & Co. 34,000 MuFu
10/04 Calamos Asset Management IPO 32,300 MuFu
11/05 New Star Asset Management IPO 26,900 MuFu
4/05 First Asset Management Affiliated Managers Group, Inc. 23,800 Inst
4/05 Daehan Investment and Securities Hana Bank 21,300 Inst
Page 30
6.0 x
8.0 x
10.0 x
12.0 x
14.0 x
16.0 x
Q1 '93 Q2 '94 Q3 '95 Q4 '96 Q1 '98 Q2 '99 Q3 '00 Q4 '01 Q1 '03 Q2 '04 Q3 '05Enterprise Value as a Multiple of Run Rate EBITDA Diversified Managers Mutual Fund Managers All Managers
Mutual Fund Managers: Calamos, Eaton Vance Corporation, Federated Investors, Inc., Franklin Resources, Inc., Gabelli Asset
Management Inc., Hennessy Advisors, Janus Capital Group Inc., Nuveen Investments , Oppenheimer, Pilgrim America Capital Corp.,
Pioneer, T. Rowe Price Associates, Inc., US Global Investors, Waddell & Reed Financial, Inc.
Diversified Fund Managers: Affiliated Managers Group, Inc., Alliance Capital Management L.P., AMVESCAP PLC, BKF Capital Group,
Inc., BlackRock, Inc., Cohen & Steers, Conning Corporation, Diamond Hill Investment Group, Legg Mason, Neuberger Berman, Nvest,
Phoenix, PIMCO, Tremont, UAM, US Trust, W. P. Stewart, Westwood Holdings Group
� Since the beginning of 2003 publicly traded multiples have skyrocketed
Public Manager Going Concern Value to Run Rate EBITDA Multiples
Public vs. Private EBITDA Multiples: A 12-year Perspective
Source: Grail Partners LLC and public sources.
14.4 x
13.1 x
12.8 x
M&A and Pricing Trends
Page 31
Pure Play Premium? $3 billion for Legg Mason
Source: Bloomberg, Grail Partners LLC
1Jan. 1 through June 23, 2005; June 24 through Dec. 30, 2005; Jan. 1 through Mar. 31 2006.
LM Daily CloseM&A and Pricing Trends
FQ'051
Avg Price: $129.30
Jul - Dec1
Avg Price: $111.29
Jan - Jun1
Avg Price: $78.38
$0
$20
$40
$60
$80
$100
$120
$140
$160
Jan-05 Feb-05 Mar-05 May-05 Jun-05 Aug-05 Sep-05 Nov-05 Nov-05 Jan-06 Feb-06 Apr-06
Share Price
Legg Mason sells brokerage,
acquires Citigroup Asset
Management and Permal, end
June
Page 32
Pure Play Premium?
Source: Bloomberg, Grail Partners LLC
1Dec. 1, 2005 through Feb. 10, 2006; Feb. 13 through May 8, 2006
BLK Daily CloseM&A and Pricing Trends
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
Dec-05 Jan-06 Feb-06 Mar-06 Apr-06 May-06
Daily Closing Price ($)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Daily Trading Volume (millio
ns)
Daily Trading Volume Closing Price
2/15: Announced
merger with MLIM
2/13: Rumors
surface
Feb - May1 Avg Price: $143.49
Dec - Feb1 Avg Price: $116.65
Page 33
AUM Transacted, by Type of Target
� In aggregate, mutual fund and diversified asset managers represent the majority of all deal activity, as measured by assets transacted.
Source: Grail Partners LLC and public sources.
Aggregate Assets Under Management Transacted by Seller Type
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD
2006
Total Estimated AUM Acquired (US$ BN)
Institutional / Private Client / Wrap (AUM) Mutual Fund / Diversified (AUM)
103
43
151
156
140
111
88
92
76
83
98
98
M&A and Pricing Trends
Page 34
AUM Acquired and Number of Transactions
� Grail Partners estimates a flurry of asset management M&A activity in the coming years
Source: Grail Partners LLC and public sources.
Historical and Forecasted Assets Under Management Acquired and Number of Transactions
232
246
185
141
81 82 7892
8295
97112
141
156150
188
$0
$500
$1,000
$1,500
$2,000
$2,500
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006E
2007E
2008E
2009E
2010E
Total Estimated AUM Acquired (US$ BN)
0
50
100
150
200
250
300
350
Number of Transactions
Total AUM Announced Number of Transactions Announced
Grail Partners Estimates
M&A and Pricing Trends
Page 35
AUM Acquired, by Type of Acquirer
� Pure play asset managers have accounted for almost all of the AUM transacted during 2005 and YTD 2006. This is the primary reason deal value is so low relative to AUM transacted.
Source: Grail Partners LLC and public sources.
Historical and Forecasted Aggregate Assets Under Management Acquired by Buyer Type
$0
$500
$1,000
$1,500
$2,000
$2,500
1998 1999 2000 2001 2002 2003 2004 2005 2006E 2007E 2008E 2009E 2010E
Acquired AUM (US$ BN)
Asset Manager Broker Dealer Insurance Company Bank or Trust Other
Grail Partners Estimates
M&A and Pricing Trends
Page 36
Aggregate Deal Value: Transatlantic Transactions
� In-market transactions have dominated since 2002
Source: Grail Partners LLC and public sources.
Aggregate Deal Value by Buyer Location
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD
2006
Total Estimated Deal Value (US$ MM)
North American Buyer In Europe European Buyer in North America
"Local" Buyer Other Cross-Continental
M&A and Pricing Trends
Page 37
$103
$159$137
$249 $307
$668
$146
$216
$473
$286
$110
$221
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 YTD
2006
Total Announced Value (US$ MM)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Average Deal Size (US$ MM)
Institutional / Private Client / Wrap Mutual Fund / Diversified Average Deal Size Value
88
111
140
156
103
151
99
43
83
76
92
98
Aggregate Deal Value of Global Asset Management Transactions by Seller Type
Aggregate Deal Value: US Transactions
� Average deal size has risen due to mega transactions—Legg/Citi, Julius Baer/SBC Wealth & GAM and BlackRock/MLIM.
Source: Grail Partners LLC and public sources.
M&A and Pricing Trends