Benzinga | Jul 6, 2021 08:23AM EDT

AMG, Parnassus Investments Announce Partnership

Affiliated Managers Group, Inc. (NYSE:AMG), a leading partner to independent active investment management firms globally, has entered into a definitive agreement to acquire a majority equity interest in Parnassus Investments ("Parnassus"). After the closing of the transaction, Parnassus partners will continue to own a substantial portion of the equity of the firm and direct its day-to-day operations consistent with AMG's partnership approach, which is recognized by the marketplace for preserving the operating and investment independence of AMG Affiliates.

With approximately $47 billion under management as of June 30, 2021, Parnassus has been a pioneer in active responsible investing for more than 35 years, focused on investing in companies that generate returns and also have a positive impact on society. Founded in San Francisco in 1984, the firm integrates deep fundamental and environmental, social, and governance (ESG) research into its collaborative, high-conviction, low turnover investment process, and is today the largest pure-play ESG mutual fund company in the U.S. With more than 95% of its mutual fund AUM in strategies with a Morningstar RatingTM of 4 or 5 stars, and each of its equity funds maintaining top sustainability ratings, Parnassus intends to provide investors with attractive long-term, risk-adjusted returns by investing in high-quality businesses at reasonable prices. As with all AMG Affiliates, the Parnassus investment process will not change as a result of its partnership with AMG, and the Parnassus investment team will remain fully independent.

"We are very pleased to have the opportunity to partner with Parnassus, as we have tremendous respect for its multi-decade work in sustainable investing and the high-quality business built by an outstanding management team," said Jay C. Horgen, President and Chief Executive Officer of AMG. "Having known the senior partners for more than a decade, AMG has developed a unique relationship with this team and closely followed the evolution of their business; when the time was right for Parnassus to choose a permanent partner and complete the first generational transition in the firm's long-term succession plan, the team chose AMG. For nearly four decades, and across numerous market cycles, Parnassus has integrated fundamental financial and ESG research with the goal of achieving attractive risk-adjusted returns for its clients. As our third Affiliate wholly dedicated to responsible and impact investing, AMG's partnership with Parnassus further enhances our strategic participation in ESG investing, one of the fastest-growing segments in the investment industry, and an area of increasingly significant focus for clients globally. I am very pleased to welcome Ben Allen, Todd Ahlsten, and their partners to our Affiliate group."

"Given our longstanding relationship with AMG, and its three-decade history of successful partnerships with independent active investment firms, we are excited about our new partnership. We believe it provides long-term certainty for our clients and enhances the competitive positioning of our business," said Benjamin E. Allen, Chief Executive Officer of Parnassus. "Since our founding, we have been committed to remaining independent and investing based on both Principles and Performance(r). AMG's unique partnership approach preserves our firm's entrepreneurial and investment-centric culture, which is essential to our clients and team; the cultural alignment between Parnassus and AMG, with our firms' respective long-term partnership orientations and strong shared belief in sustainable investing, made our decision clear. Todd Ahlsten and I have committed to provide leadership to our firm for many years to come, and other members of the partnership group will be aligned with the long-term interests of our investors, and AMG, through equity ownership in Parnassus. With this new partnership, we are well-positioned to continue to build an enduring, multi-generational, partner-owned investment firm that serves the sustainable investing needs of our clients."

The closing of the transaction will represent the culmination of the transition from founder Jerome Dodson, who retired from portfolio management and all managerial duties in 2020, to the next generation of leadership. Mr. Dodson and his family will no longer retain any ownership of Parnassus. Mr. Dodson said, "I started Parnassus Investments more than 35 years ago because I believed that one could invest according to their values and still beat the market. I'm gratified to see how many investors are now investing the way we have at Parnassus for so many years. I am proud of Parnassus' seasoned leadership team and very pleased that the company we built will live on to serve generations of clients to come."

The terms of the transaction were not disclosed. AMG expects that the investment in Parnassus will contribute approximately $70 million to Adjusted EBITDA and $1.30 to Economic earnings per share in 2022, and the transaction will be funded with existing corporate resources. Mr. Allen and Mr. Ahlsten will enter into long-term employment agreements with the firm. The transaction, which is expected to close during the second half of 2021, is subject to customary closing conditions and regulatory approvals.

Moelis & Company LLC acted as exclusive financial advisor to Parnassus Investments.