When Pharos Capital Group L.L.C. (No. 5 on the BE Private Equity Firms list with $600 million in capital under management) acquired American Beacon Advisors Inc. (No. 1 on the BE Asset Managers list with $39.8 billion in assets under management) in 2008, it was a deal years in the making.
Pharos CEO Kneeland Youngblood was invited to serve on the mutual fund board for AMR Investments (formerly American Beacon) in the 1990s. He was immediately impressed with the track record of the division of Fort Worth, Texas-based AMR Corp., parent of American Airlines. Launched in 1986, AMR Investments initially managed pension assets for airline employees. However, after consistently beating its benchmarks, the decision was made to pursue outside clients and manage assets for mutual funds, pension funds, and short-term fixed income for former AMR units Sabre Holdings, an IT company, and airline caterer LSG Sky Chefs.
Pharos and its partners (which included private equity firm TPG Capital LP) closed the deal for $480 million, primarily in cash. Pharos became majority shareholder while TPG owns a minority stake and AMR Corp. retains an approximate 10% equity position. “Kneeland always had a dream that we could make this a company that he would be very involved in and become a minority-certified firm [that would] be the biggest and best in that bracket for the services that we provide,” says American Beacon Chairman William F. Quinn.
It certainly was a dream realized for Youngblood. He was planning the acquisition for years and after a false start, finally achieved his goal—an asset management firm that could be scaled up further than any of its black-owned peers. However, there were surprises along the way. Among them, a meltdown in the financial markets that caused managed assets (and revenues) to plummet. But by focusing on new products, cherry-picking top fund managers, and bolstering sales and distribution, this be 100s newcomer not only overtook the No. 1 spot among be asset managers but has positioned itself to achieve Youngblood’s vision of creating the first African American-controlled $100 billion asset management firm.