According to a source familiar with the matter, T. Rowe Price Group Inc. (NASDAQ: TROW) has entered an agreement to acquire Oak Hill Advisor for around$4.2 billion as the money manager seeks to venture into the private-debt investment business.
T. Rowe Price diversifying to unconventional investments
For decades, Oak Hill has been involved in distressed debt transactions, and last year it offered rescue finance to companies whose operations were harmed by the coronavirus outbreak.
T. Rowe Price, well renowned for its bond and stock-picking funds, is expanding into unconventional investing. Sources told The Wall Street Journal that the firm would pay cash and stock for Oak Hill, s firm that manages $53 billion. T. Rowe Price is making its first major corporate acquisition in over two decades.
Money managers have stepped in as greater lenders to fill the hole left by banks in the aftermath of the 2008 financial crisis, and private-credit investing has risen over the last decade. Private investment firms have been protected from fee wars that money managers focusing on bonds and stocks face.
Bond funds affected by low-interest rates
The low-interest rates have harmed bond fund returns, prompting investors to seek greater yields in the private debt markets. In addition, investors have poured more money into low-cost index funds as traditional managers have failed to keep up with the stock market’s surge.
To compensate for the low-cost funds that dent their bottom line, most large money managers such as Pacific Investment Management Co, JPMorgan Chase & Co., and BlackRock have acquired specialized managers to expand their offerings. Others are pursuing bolder, larger deals focusing on cost advantages and scale.
The transaction is expected to close at the end of 2021. Once the transaction has been finalized, Oak Hill will be an independent entity, with its CEO Glen August continuing to head the firm.
According to The Wall Street Journal, T. Rowe Price’s president Rob Sharps indicated in July 2021 that the company has been exploring acquisition aggressively in recent years. Sharps is expected to take over as the company’s CEO next year. Sharps said:
We do not need to be involved in any acquisition for the benefit of scale. That’s not what we are interested in. We could be interested in extending our capabilities and investment-led culture.
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