Pimco to Buy Major Stake in Oppenheimer
Pimco Advisors LP said Friday that it agreed to acquire a major stake in Oppenheimer Capital LP, a large manager of stock-based investment funds, in a deal that would make one of the nation’s largest money managers even larger.
The $265-million purchase, first rumored last month, would give Newport Beach-based Pimco broad access to the hot equity mutual funds market, which has been attracting record numbers of small investors. In contrast, the bond-fund market in which Pimco specializes has been largely shunned by individual investors since 1994.
Pimco said it would issue $233 million in preferred stock to closely held Oppenheimer Group Inc. and assume $32 million in debt in return for the New York investment group’s 33% interest in Oppenheimer Capital. The remaining shares of Oppenheimer Capital would be publicly traded.
About 73% of the $110 billion in assets managed by Pimco is in bonds, while about 80% of the $48 billion managed by Oppenheimer Capital is invested in stocks.
“This is a significant increase in our asset base and it balances our asset mix,” said William Cvengros, Pimco Advisors chief executive.
In 1996, the net amount of new cash flowing into stock funds reached a record $223.3 billion as investors continued to chase the soaring stock market. Bond funds, in contrast, attracted a mere $13.8 billion industrywide.
But Cvengros said he expects momentum to start swinging back toward a preference for bond funds “in the next 18 to 24 months.” The Oppenheimer Capital acquisition, he said, would give Pimco the ability to do well at all points on the investment spectrum.
The transaction would also give Pimco access to clients that have not been interested in its bond-based products. There is little overlap in the two companies’ client list, Cvengros said.
Oppenheimer’s stock funds could also provide Pimco with equity products to sell to small investors as it continues increasing the accessibility of its investment programs at the retail level, he said.
Both companies now manage money for primarily large institutional investors such as pension funds that typically invest in multiples of $1 million. In recent months, though, Pimco has opened more of its funds to individual investors.
As part of the deal, Pimco will also acquire the stock of Advantage Advisers, an Oppenheimer Group affiliate that manages eight closed-end investment funds.
Pimco stock closed unchanged Friday at $25.50 per share, while Oppenheimer Capital shares--which rose when word of a possible deal first broke last month--fell $1.625 to close at $36.50. Both stocks trade on the New York Stock Exchange.
