Significantly Diversifies Asset Base, Enhances
Investment Capabilities and Increases Scale Provides Entry
into New Distribution Channel with Loyal Member Base
Victory Capital Holdings, Inc. (NASDAQ:VCTR) (“Victory Capital” or
“the Company”) and USAA® today announced that Victory Capital has
entered into a definitive purchase agreement to acquire USAA Asset
Management Company (which includes its Mutual Fund and ETF
businesses and USAA 529 College Savings Plan). As of September 30,
2018, USAA Asset Management Company had $69.2 billion in assets
under management (AUM) in 53 investment funds. Based on AUM as of
September 30, 2018, Victory Capital would have approximately $144.4
billion in firmwide AUM1 at the close of the transaction.
USAA Asset Management Company, based in San
Antonio, Texas, was formed to serve the investment needs of the
military community and their families. Today, it is a leading
investment firm with a full suite of investment capabilities, a
strong investment performance track record and a distinguished
reputation for service to its members. Barron’s named USAA Asset
Management the 12th Best Fund Family of 2016 and the 23rd Best Fund
Family of 2017. It was also ranked 3rd in the taxable bond category
for 2016 and 5th for 2017.
USAA Asset Management Company will become
Victory Capital’s 11th Investment Franchise and it will have the
rights to offer products and services using the USAA brand. As part
of Victory Capital, USAA’s investment teams will continue serving
the investment needs of the military community and their families
by employing the disciplined investment processes that they have
used in the past.
The acquisition of USAA Asset Management Company
represents a substantial expansion and diversification of Victory
Capital’s investment platform, particularly in the fixed income and
solutions asset classes. Victory Capital will extend its Solutions
Platform to include target date and target risk strategies, managed
volatility mutual funds and active fixed income ETFs. It will also
add to its lineup of asset allocation portfolios and smart beta
equity ETFs. USAA Asset Management Company also offers sub-advised
and multi-manager equity funds that will expand the choices for
Victory Capital clients. Based on AUM on September 30, 2018,
Victory Capital’s AUM by asset class pro forma for the acquisition
would be 48% equities, 26% solutions, 19% fixed income and 7% money
market.1
The transaction also provides a new and unique
opportunity for Victory Capital to offer its products to USAA
members through a direct member-based channel with attractive
organic growth and retention rates. USAA mutual funds have
experienced an average 10-year organic growth rate of 3.4% compared
with 1.1% for their active manager peers.2
“USAA is renowned for its exceptional commitment
to serving the military community, and we are honored to continue
its long-standing tradition of putting member needs first.” said
David Brown, Chairman and Chief Executive Officer of Victory
Capital.
“The acquisition of USAA Asset Management
Company is a strong diversifier for us with the addition of quality
investment teams and products and provides us entry into a new
distribution channel with a loyal member base. It increases our
size and scale, enhances our ability to attract and retain top
investment talent, and leverages our investments in critical
components of our business, such as technology, operations,
investment support and client service, across a broader base of
assets,” Mr. Brown added.
“We continually look to deliver on our mission,
facilitating the financial security of members through highly
competitive products and services for the military community,” said
Stuart Parker, Chief Executive Officer, USAA. “We believe Victory
Capital is well positioned to provide a broader selection of
leading-edge investment solutions to our members over the long term
while maintaining the high standards of service that our members
expect. We are committed to working with employees and members to
ensure a smooth transition.”
Victory Capital and USAA share a commitment to
investment excellence and client service that aligns the two
organizations and creates a foundation upon which to build a strong
future working relationship. Victory Capital intends to establish a
significant presence in San Antonio and further enhance investment
services for USAA members. Victory Capital also plans to develop a
nationwide financial literacy platform designed to support the
military community, USAA members and their families.
Under terms of the purchase agreement, Victory
Capital will acquire USAA Asset Management Company for $850 million
plus the opportunity for additional contingent payments based on
future business performance. Victory Capital expects to finance the
transaction through a combination of debt and cash on the balance
sheet. It is expected to result in significant accretion to
earnings per share as well as value creation for Victory Capital
shareholders through expense synergies and the opportunity for
meaningful organic growth. The acquisition is expected to close in
the second quarter of 2019, and is subject to regulatory and other
customary approvals, conditions and consents, including approval by
USAA mutual fund and ETF shareholders and Board of Trustees.
1. Based on AUM as of September 30, 2018, for
Victory Capital, USAA Asset Management Company and Harvest
Volatility Management, LLC. Note: Excludes $11.8 billion of AUM in
the USAA mutual funds as of September 30, 2018 that are invested
through the Managed Money product offered for customers of USAA’s
brokerage business. Victory Capital is not acquiring the USAA
brokerage business. Pro forma revenue and pro forma EBITDA do
not include any revenue from AUM invested through the Managed Money
product or related expenses. 2.SimFunds as of September 30,
2018. Organic growth calculated as net new flows/beginning of
period AUM. Market and USAA mutual fund figures exclude money
market AUM.
Investor Conference Call
Victory Capital will host a conference call and
webcast at 8:00 a.m. Eastern Time tomorrow, November 7, 2018. The
call can be accessed via telephone at 866-465-5145 (domestic) or
409-220-9945 (international). Please reference the Victory
Capital Conference Call.
A recorded replay of the conference call will be
available shortly after the conclusion of the live call and can be
accessed through November 21, 2018 by dialing (855) 859-2056
(domestic) or (404) 537-3406 (international), and entering the
Conference ID Number 2746159. The slide presentation and webcast of
the conference call can be accessed on the Events page of the
Victory Capital’s investor relations website at
https://ir.vcm.com.
Barclays Capital Inc. and RBC Capital Markets
served as financial advisors and Willkie Farr & Gallagher LLP
acted as legal advisor to Victory Capital in this transaction.
Goldman Sachs & Co. LLC served as financial advisor and Simpson
Thacher & Bartlett LLP acted as legal advisor to USAA.
About Victory Capital
Victory Capital is a global investment
management firm operating a next-generation, integrated
multi-boutique business model with $63.6 billion in assets under
management as of September 30, 2018.
Victory Capital’s differentiated model is
comprised of nine Investment Franchises*, each with an independent
culture and investment approach. Additionally, the Company offers a
rules-based Solutions Platform, featuring the VictoryShares ETF
brand, as well as custom and multi-asset class solutions. The
Company’s Investment Franchises and Solutions Platform are
supported by a centralized distribution, marketing and operational
environment, in which our investment professionals can focus on the
pursuit of investment excellence.
Victory Capital provides institutions, financial
advisors and retirement platforms with a variety of asset classes
and investment vehicles, including separately managed accounts,
collective trusts, mutual funds, ETFs, UCITs and UMA/SMA
vehicles.
For more information, please visit www.vcm.com.
*Harvest Volatility Management, LLC will become
Victory Capital’s 10th Investment Franchise. The acquisition of
Harvest is expected to close by the end of the first quarter of
2019, and is subject to regulatory and other customary approvals,
conditions and consents, including approval by Harvest’s
clients.
About USAA
The USAA family of companies provides insurance,
banking, investments, retirement products and advice to more than
12.7 million current and former members of the U.S. military and
their families. Known for legendary commitment to members, USAA
consistently is recognized for outstanding service, employee
well-being and financial strength. USAA membership is open to all
who are serving our nation in the U.S. military or have received a
discharge type of Honorable – and their eligible family members.
Founded in 1922, USAA is headquartered in San Antonio. For more
information about USAA, follow us on Facebook or Twitter (@USAA),
or visit usaa.com.
FORWARD-LOOKING
STATEMENTS
This press release may contain forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements may include, without
limitation, any statements preceded by, followed by or including
words such as “target,” “believe,” “expect,” “aim,” “intend,”
“may,” “anticipate,” “assume,” “budget,” “continue,” “estimate,”
“future,” “objective,” “outlook,” “plan,” “potential,” “predict,”
“project,” “will,” “can have,” “likely,” “should,” “would,” “could”
and other words and terms of similar meaning or the negative
thereof. Such forward-looking statements involve known and unknown
risks, uncertainties and other important factors beyond Victory
Capital’s control, as discussed in Victory Capital’s filings with
the SEC, that could cause Victory Capital’s actual results,
performance or achievements to be materially different from the
expected results, performance or achievements expressed or implied
by such forward-looking statements.
Although it is not possible to identify all such
risks and factors, they include, among others, the following:
reductions in AUM based on investment performance, client
withdrawals, difficult market conditions and other factors; the
nature of the Company’s contracts and investment advisory
agreements; the Company’s ability to maintain historical returns
and sustain its historical growth; the Company’s dependence on
third parties to market its strategies and provide products or
services for the operation of its business; the Company’s ability
to retain key investment professionals or members of its senior
management team; the Company’s reliance on the technology systems
supporting its operations; the Company’s ability to successfully
acquire and integrate new companies; the concentration of the
Company’s investments in long-only small- and mid-cap equity and
U.S. clients; risks and uncertainties associated with non-U.S.
investments; the Company’s efforts to establish and develop new
teams and strategies; the ability of the Company’s investment teams
to identify appropriate investment opportunities; the Company’s
ability to limit employee misconduct; the Company’s ability to meet
the guidelines set by its clients; the Company’s exposure to
potential litigation (including administrative or tax proceedings)
or regulatory actions; the Company’s ability to implement effective
information and cyber security policies, procedures and
capabilities; the Company’s substantial indebtedness; the potential
impairment of the Company’s goodwill and intangible assets;
disruption to the operations of third parties whose functions are
integral to the Company’s ETF platform; the Company’s determination
that Victory Capital is not required to register as an "investment
company" under the 1940 Act; the fluctuation of the Company’s
expenses; the Company’s ability to respond to recent trends in the
investment management industry; the level of regulation on
investment management firms and the Company’s ability to respond to
regulatory developments; the competitiveness of the investment
management industry; the dual class structure of the Company’s
common stock; the level of control over the Company retained by
Crestview GP; the Company’s status as an emerging growth company
and a controlled company; and other risks and factors listed
elsewhere in the Company’s filings with the SEC.
Such forward-looking statements are based on
numerous assumptions regarding Victory Capital’s present and future
business strategies and the environment in which it will operate in
the future. Any forward-looking statement made in this press
release speaks only as of the date hereof. Except as required by
law, Victory Capital assumes no obligation to update these
forward-looking statements, or to update the reasons actual results
could differ materially from those anticipated in the
forward-looking statements, even if new information becomes
available in the future.
Investor Relations Website
Victory Capital may use the Investor Relations
section of its website, https://ir.vcm.com, to disclose material
information to investors and the marketplace as a means of
disclosing material, non-public information and for complying with
disclosure obligations under Regulation Fair Disclosure (“Reg
FD”). Victory Capital encourages investors, the media and
other interested parties to visit its investor relations website
regularly.
ContactsMedia:
For USAA:Matthew Hartwig,
210-819-9109matthew.hartwig@usaa.com
For Victory Capital: Tricia Ross,
310-622-8226tross@finprofiles.com
Investors:
Lisa Mueller, 310-622-8231lmueller@finprofiles.com
Barron’s ranked USAA Asset Management 12th
overall and 3rd in the Taxable Bond category out 61 fund families
for the one-year period ended December 31, 2016 and 23rd overall
and 5th in the Taxable Bond category out of 58 firms for the
one-year period ended December 31, 2017.
How Barron’s Ranks the Fund Families
All mutual and exchange-traded funds are
required to report their returns (to regulators, as well as in
advertising and marketing material) after fees are deducted, to
better reflect what investors would actually receive. But our aim
is to measure managers’ skill, independent of expenses beyond
annual management fees. That’s a large part of why we calculate
returns before any 12b-1 fees are deducted. Similarly, loads, or
sales charges, aren’t included in our calculation of returns. The
other reason? The multitude of share classes makes it nearly
impossible to ascertain what a typical investor would pay in terms
of annual expenses or loads.
Each fund’s performance is measured against all
of the other funds in its Lipper category, with a percentile
ranking of 100 being the highest and one the lowest. The result is
then weighted by asset size, relative to the fund family’s other
assets in its general classification. If a family’s biggest funds
do well, that boosts its overall showing; poor performance in its
biggest funds hurts a firm’s ranking. To be included in our survey,
a firm must have at least three funds in the general equity
category, one world equity, one mixed asset (such as a balanced or
target-date fund), two taxable bonds, and one national tax-exempt
bond fund.
We have historically excluded single-sector and
single-country stock funds, but those are now included, as part of
the general equity category. We exclude all index funds, including
pure index, enhanced index, and index-based. But we include
actively managed exchange-traded funds and ETFs with indexing
strategies that are not the traditional capitalization-weighted or
equal-weighted.
Finally, the score is multiplied by the
weighting of its general classification, as determined by the
entire Lipper universe of funds. The category weightings for the
one-year results in 2017 were general equity, 36.1%; mixed asset,
19.9%; world equity, 18.7%; taxable bond, 21.2%; and tax-exempt
bond, 4%.
The scoring: Say a fund in
the general U.S. equity category has $500 million in assets,
accounting for half of a firm’s assets in that category, and its
performance lands it in the 75th percentile for the category. The
first calculation would be 75 times 0.5, which comes to 37.5. That
score is then multiplied by 36.1%, general equity’s overall
weighting in Lipper’s universe. So it would be 37.5 times 0.361,
which equals 13.54. Similar calculations are done for each fund in
our study. Then the numbers are added for each category and
overall. The shop with the highest total score wins. The same
process is repeated to determine five- and 10-year rankings.
Source: “Barron’s Best Fund Families”, March 12, 2018.
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