Takeover Planned for Constellation Funds Group
Posted on: Wednesday, 8 February 2006, 12:00 CST
By Todd Mason, The Philadelphia Inquirer
Feb. 8--A Berwyn firm formed in 2004 to "adopt" downsizing mutual funds is itself being taken over by a larger firm as consolidation continues in the fund industry.
Investors in the Constellation Funds Group family will vote at a special meeting Feb. 17 on an acquisition of the funds by Touchstone Advisors Inc., a subsidiary of Cincinnati insurer Western & Southern Financial Group.
Financial terms were not disclosed.
"I am afraid we'll be looking for new opportunities," Constellation's chief executive officer, John Grady, said of himself and Constellation's 15 employees.
The sale is expected to be completed next week.
Constellation is making the deal because its mutual funds need "the ability to access other distribution channels," Grady said. Constellation sells through financial planners and retirement plans.
Touchstone sells load funds through financial advisers and brokerage firms. It wants access to Constellation's stable of investment managers, who work under contract to the fund family.
Those managers will remain in charge under Touchstone's ownership. Constellation investors will be grandfathered as no-load, or commission-free, clients, and charged the same annual fees and expenses or less, Grady said.
Grady seized an opportunity in 2004, when he was chief operating officer at Turner Investment Partners Inc., of Berwyn. Turner was abandoning a plan to add value funds to its line of growth funds.
Constellation took in Turner's value orphans, and solicited other funds, anticipating that small fund operations would be looking to shed the expense and hassle of dealing with investors.
Securities and Exchange Commission rules imposed after the fund scandals of 2003 and 2004 "create a financial barrier that small funds have a hard time getting over," said Burt Greenwald, a Philadelphia consultant to the mutual-fund industry.
Constellation amassed $2.8 billion in assets held in 19 mutual funds managed by Turner; Chartwell Investment Partners, of Berwyn; Pitcairn Financial Group, of Jenkintown; and others.
Constellation would have succeeded if Grady "could have held out for three or four years," Greenwald said. "I think what he lacked was the capital to sustain the operation."
Touchstone holds $4 billion in assets. The company also contracts with sub-advisers, or outside firms, to manage its funds.
Contact staff writer Todd Mason at 215-854-5679 or tmason@phillynews.com.
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Source: The Philadelphia Inquirer
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