Carlyle in Talks to Sell TCW Stake -- WSJ

Bidders for bond manager include Japan's Nippon Life, Mitsubishi UFJ

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (September 28, 2017).

Carlyle Group LP is in talks to sell a stake in bond manager TCW Group Inc. to bidders including Japan's Nippon Life Insurance Co. and Mitsubishi UFJ Financial Group Inc., according to people familiar with the matter.

The private-equity firm, which bought 60% of TCW from French bank Société Générale SA in 2013, has been exploring the sale of at least part of its stake for months. MUFG, as it is known, emerged as a potential buyer of the $200 billion asset manager after discussions with Nippon were already under way, the people said. Other American and European firms subsequently expressed interest, they said, though it is unclear how serious those talks are.

A deal may not materialize, the people cautioned.

The two Japanese firms are among several Asian financial giants to explore investments in the U.S. asset-management industry, known for its relatively thick profit margins and consistent revenue. Japan's SoftBank Group recently agreed to buy Fortress Investment Group LLC, while Chinese conglomerate HNA Group is pursuing the purchases of hedge-fund firm SkyBridge Capital and a stake in OM Asset Management PLC.

While most investment firms are under pressure to lower fees, fixed-income managers such as TCW have so far fared better than their stock picking counterparts in stemming the flow of client money into exchange-traded funds and other "passive" investments.

A deal with either Japanese firm could provide a source of new money for TCW to manage or seed funding for new products, such as mutual funds.

Carlyle earlier this year ratcheted up efforts to exit all or part of the investment, people familiar with the matter said. TCW executives own 40% of the company -- and therefore have a say in any deal Carlyle may pursue. Those executives have made it clear to Carlyle that they would reject any proposed deal that would encroach on their autonomy -- all but ruling out an acquisition by an asset manager eager to integrate the firm into its existing business. The managers have also resisted a potential initial public offering.

Should there be a deal, TCW executives could become the company's largest shareholder, the people said.

Managers at TCW view Nippon, one of Japan's largest insurers, as a long-term investor that would likely give them more control over the firm's future than other possible buyers, the people said. Nippon also is a known quantity to the Los Angeles bond manager; its Nissay Asset Management sells TCW funds to its clients.

Tokyo-based bank MUFG has tried to expand overseas in recent years and firm leaders have said a larger asset-management unit is part of its global aspirations.

Founded in 1971, TCW overcame the losses of star managers Howard Marks and Jeffrey Gundlach, each of whom set off on their own, and today remains one of the bond market's most-respected investors.

After the firm fired Mr. Gundlach in 2009, it acquired another southern California bond manager, Metropolitan West Asset Management. The MetWest team's bond funds have grown dramatically in recent years, thanks in part to the client money that gushed out of Pacific Investment Management Co., or Pimco, following star manager Bill Gross's 2014 departure. MetWest alumni now hold many of the key posts at TCW. They include Chief Executive David Lippman and fixed-income investment chief Tad Rivelle, who manages more than $160 billion of TCW's $197 billion in assets.

The firm's flagship MetWest Total Return Bond Fund in November dethroned Pimco Total Return, once managed by Mr. Gross, as the largest actively managed bond fund.

The MetWest fund's returns have sagged recently though, hampered by a bearish call on corporate bonds. Steady investor demand has supported those bonds all year. Earlier this year, MetWest Total Return lost the title as the biggest active bond fund to another Pimco fund.

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(END) Dow Jones Newswires

September 28, 2017 02:47 ET (06:47 GMT)