T Rowe Price is buying credit manager Oak Hill Advisors for up to $4.2bn in cash and shares, in a deal that marks the latest example of consolidation in the asset management industry and illustrates growing appetite for alternative strategies.
The transaction is the Baltimore-based group’s first significant acquisition in more than two decades and one of the larger deals in the global fund management industry’s history.
T Rowe, which has $1.61tn in assets under management and is one of the world’s top active managers, said on Thursday that it will acquire 100 per cent of the equity of New York-based Oak Hill, which has $53bn in assets under management across private, distressed, special situations, liquid, structured credit, and real asset strategies.
Under the terms of the acquisition, $3.3bn is payable at closing, roughly 74 per cent in cash and 26 per cent in T Rowe Price common stock, and up to an additional $900m in cash is payable if certain business targets are reached. The high price reflects big demand for private capital and the competition for deals in the sector.
Bill Stromberg, T Rowe Price chief executive, said in a statement: “Oak Hill meets the high bar we have set for inorganic opportunities, and their proven private credit expertise will help us meet our clients’ demand for alternative credit.”
T Rowe Price’s funds focus on equity, fixed income and multi-asset strategies, and it said it has limited overlap with Oak Hill in terms of investment strategies and clients. Oak Hill will become its private markets platform and the two firms said that they plan to explore expanding into other alternatives strategies in time.
The deal comes as investors turn to private capital strategies in their search for yield in a low-return environment. The overall private capital industry, which includes sectors such as private credit, private equity and infrastructure, grew to $7.4tn at the end of 2020 and is expected to hit $13tn by the end of 2025, according to Morgan Stanley.
Demand for these types of strategies, which offer the prospect of higher returns but charge higher fees and are more opaque, has driven investment groups to hire teams, launch new divisions and hunt for acquisitions. Meanwhile, dealmaking activity has ramped up in the asset management industry, as firms seek scale, tap into new growth areas and curb costs.
So far this year there have been 160 asset management deals globally, worth $25.3bn, according to Dealogic. Last year there were 208 deals valued at a total $54bn.
Oak Hill will operate as a standalone business within T Rowe Price. Its founder and chief executive Glenn August will continue in his role and is expected to join the acquirer’s board of directors and management committee.
The deal is expected to close in the fourth quarter, pending regulatory approval.