Thursday, May 18, 2006

NYLife acquiring ICAP

Finding good money managers, particularly in the mutual fund domain, has always been challenging. One of the qualitative factors to look at is the ownership structure of the money manager. Privately held firms are, by design, less conflicted between the purely economic and often short term goals of shareholders and the business and investment staregies which, over the long run, are in the best interests of the investors. Said another way, when good investors also own their firms, it is more likely that the quality and discipline of the investing process will overide ownership concerns about short term profitability.
The agency issues and conflicts embedded in a public shareholder - investor dynamic ofetn ruins good money management.

The WSJ reported this morning that Institutional Capital Corp - ICAP- has agreed to be acquired by NY Life. ICAP is a strong shop with many of the characteristics one should look for in a money manager. Though NYlife is a mutual company, the risk of overleveraging, overmarketing and disincenting the ICAP investment team becomes a new risk for ICAP investors with this transaction.

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