Philly fund revival? Turner-Veracen seeks $12M to build $15B empire
Vanguard licensing and low-cost fund models
Turner Investments plans to merge its investment advisory platform with that of Michael Kennedy's Radnor-based Veracen LP, in a proposal to use the shrunken Berwyn-based mutual fund group founded by stock-picker Robert E. Turner to build a larger, more automated investment management firm, according to privately-circulated documents obtained by the Inquirer.
If the deal goes through as planned later this month, Turner also seeks to raise $12.5 million from private investors to fund rapid expansion, according to an "Investor Presentation" dated June 30 and shown to potential investors.
Organizers say they expect to add new mutual funds and exchange-traded funds, some through licensing agreements with larger fund managers.
The project they will boost assets from Turner's current total of $380 million at May 31 -- down from a peak of $30 billion before the 2008 financial crisis -- to more than $10 billion by 2018, and $15 billion by 2021. The group also hopes to boost fees and other revenues, from less than $5 million this year, to nearly $75 million by 2021. If that happens, after-tax profits are supposed to start at $8 million next year, rising to $32 million in five years. They plan offices in Boston, New York and Philadelphia.
Turner Investment Holdings L.P., a Delaware-registered business set up to absorb Turner Investments, has also circulated a detailed Confidential Private Placement Memorandum, which notes the $12.5 million offer is "Highly Speculative."
Robert Turner, Veracen officials, and a spokesman did not immediately return calls seeking more details about their plans.
Using remote computing servers "in the cloud," secure systems and proprietary investment strategies, Turner hopes to create a "scaleable investment platform with competitive proprietary products," thanks to a "high degree of automation," which will make possible "lower fee structures."
"Exchange-listed products, Strategic Beta [managed-index], ESG [Environmental, Social and Governance-oriented], and Mutual Funds are in high demand," the organizers claim in the presentation.
The largest mutual fund company, Malvern-based Vanguard Group, which for several years in the 2000s hired Turner's firm to run stock funds, has prospered by focusing on bond and index funds, which are cheaper to operate than old-fashioned stock-picking funds like Turner's; on exchange-listed funds sold by brokers; and on automating customer service, financial advice, and other labor-intensive functions.
Those strategies have helped Vanguard grow even as traditional actively-managed stock funds like Turner's have had a tough time winning new investors, leaving their owners looking for new ways to compete, and new partners.
As part of the merger proposal, Veracen founder Michael T. Kennedy will serve as Managing Principal and as a trustee for the funds. He is a former CFO of Airgas (1985-90) and was Chairman and CEO of investment group Radnor Holdings Corp. (1991-2006). Kennedy is also senior managing partner of Veracen LP (since 2011) and CEO of Veracen Funds (since 1990).
Kennedy and Radnor Holdings Corp. have been in federal litigation with creditors, investors were told in Turner documents.
Founder Turner will be in charge of "Global Equity Strategies," according to the plan.
Erik Hagar, a Vanguard veteran and onetime president of the Chartered Financial Analysts Society of Philadelphia, will head equity research, product development and asset allocation.
Turner's John Fraunces will manage a healthcare portfolio. Other Turner veterans who will run portfolios include Scott Swickard, Jason Schrotberger and firm cofounder Christopher McHugh.
Also under the plan, Veracen veteran Robert Baird III will serve as COO for the firm and its affiliates and as chief accounting officer of Veracen Funds. CFO is Michael Valenza, former CFO of Radnor Holdings Corp. Jena W. Dietrich, a former Turner marketing director, plans to rejoin Turner.
Independent trustees are to include Peri Wallace Higgins, head of Evolve Advisers and a veteran of Radnor Holdings; Richard Miles, partner and managing director at Berkshire Capital Securities LLC and a CFO at the former Philadelphia brokerage Butcher & Singer; and William Moran, a former EVP at JPMorgan Chase & Co.
Veracen says affiliate Veracen Technology & Research has been working on improved stock and bond strategies since 2009, backed by $8.7 million invested by Trinity Capital Partners LP, where Kennedy is senior managing partner.
