The wave of money management firms looking to sell shares of themselves to the public is an indicator of how robust the U.S. stock market has become.
"When money managers who are in the business of buying and selling stocks think it's a good time to sell, you've got to think the (stock) market is getting fully priced," said Don Hays, market strategist of Wheat First Union Inc. in Richmond, Virginia.
The same thing happened in 1986 and early 1987 when money managers such as T. Rowe Price Associates Inc., Atalanta/Sosnoff Capital Corp. and Reich & Tang LP, known today as Nvest LP, sold shares to the public. Soon after, the market slumped and then began what's been the best bull market in history.
These days, executives at Neuberger & Berman LLC, Frank Russell Co. and Gabelli & Co. are at least considering the idea of initial public stock offerings.
Federated Investors of Pittsburgh already has lined up Merrill Lynch & Co. to help it sell shares at a price of about $20 each in an IPO scheduled for next month.
The interest in IPOs is coming at a time when the gains of existing money-management stocks, such as Franklin Resources Inc. and T. Rowe Price, are outpacing the benchmark Standard & Poor's 500 Index. Franklin shares are up about 87 percent in the past year and T. Rowe Price shares are up 94 percent, while the S&P 500 is up nearly 47 percent.
"What's happening is a recognition that the money management industry is a standalone part of the financial services business that the market accepts," said Rick Adler, managing director of Convergent Capital Management Inc., a Chicago firm that invests in money management firms.
The high returns are certainly catching the eye of industry executives who are considering taking the public route as a way to raise capital to expand their businesses. An IPO also would allow the firms' top executives to maintain control, which is something they want.
Fund executives also see the success of recent offerings and realize it's a good time to sell stock in their businesses.
The disadvantage of going public for firms like Neuberger & Berman is that they'll face quarterly pressure to deliver strong earnings, said Geoff Bobroff, an industry consultant in East Greenwich, R.I. "When you're a private company, you keep complete control and you don't have to worry as much about delivering earnings to satisfy outside shareholders," he said.