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Sale of largest US ESG fund manager Parnassus still in the offing after investor no-show at vote

Another special shareholder meeting will be held later this month

Parnassus Investments, the US’ biggest dedicated ESG manager, has failed to secure shareholder approval for the long-awaited acquisition by investment holding company Affiliated Managers Group (AMG) and will reconvene another shareholder meeting at the end of the month.

Investors in the Parnassus range of ESG mutual funds were due to vote on post-acquisition investment advisory arrangements at a special shareholder meeting on Monday as the current advisory structure would terminate upon completion of the sale to AMG.

However, the meeting was adjourned for a later date this month to allow more time for shareholders to vote due to the insufficient numbers of votes which had been cast by Monday’s deadline. Parnassus is looking at September 28 as a potential date for the next meeting.

“We’re complete on some of the items, but not on the others so the effort to get investors to vote is still underway. As you may know, voting proxies for mutual fund shareholders is often viewed by them as an administrative chore, so we’re doing a lot of outreach to ask them to cast their vote. We’ll see if we reach the necessary numbers soon,” said Parnassus Chief Marketing Officer Joe Sinha in an update to RI.

The proposed acquisition would see AMG, an asset manager with stakes in more than 35 fund managers including recently-acquired ESG shops Boston Common and Inclusive Capital Partners, take a majority interest in San Francisco-based Parnassus for a deal reportedly valued at $600m. Transaction terms have not been formally disclosed.

Founded in 1981 by former CEO and sustainable investment pioneer Jerome Dodson, Parnassus is considered the largest pure-play ESG fund manager in the US with $47bn in assets under management across five dedicated ESG funds.  

According to Morningstar’s sustainability research head Jon Hale, the deal was triggered by Dodson’s decision to cash out on his entire stake in Parnassus – estimated at more than 60% – after his retirement from portfolio management and managerial duties last year.

The deal aims to keep Parnassus’ investment team intact and fully independent, with CEO Benjamin Allen and portfolio manager Todd Ahlsten each signing 10-year contracts, and others receiving additional equity in the firm.

AMG expects the acquisition of Parnassus to contribute $70m of earnings before tax and other adjustments, and $1.30 of economic earnings per share in 2022. The move will boost AMG’s total assets managed by affiliates to around $785bn. 

In a regulatory filing to Parnassus investors, AMG said: “I want you to know that the way we invest your assets will not change with this agreement because… AMG’s partnership approach preserves each Affiliate’s unique entrepreneurial culture and fully independent investment decision-making process, and does not involve any integration of Affiliate firms or their operational or investment functions.

“In addition, senior principals of Parnassus Investments will continue to own direct equity in the firm, and additional principals will own equity. It is the shared view of AMG and Parnassus Investments that ongoing direct equity ownership in the business … will ensure a long-term orientation by leadership, and maintain Parnassus Investments’ unique and investment-centric entrepreneurial culture.

Morningstar manager research analyst Stephen Welch said that AMG’s statement was in line with the company’s approach to acquisitions. “Honestly, I think the deal will have no impact on current Parnassus investors so I think it's a good move for the manager. AMG is known for letting all their boutiques retain their individual brand so I really don’t expect much change.

“One of the areas Parnassus can improve in is distribution so being able to tap some of the international resources that AMG has at its disposal is a win-win.”

The addition of Parnassus to AMG’s stable of affiliates is also anticipated to provide further opportunities for collaboration on sustainability issues. In an earlier interview, Parnassus CEO Benjamin Allen said the firm would consider leveraging Boston Common’s expertise in future engagements with portfolio companies.

The proposed deal is the latest example of a large Wall Street entity buying up small or midsize ESG managers to tap into the growing demand for sustainable investing as evidenced by the acquisitions of Trillium, Eaton Vance, OpenInvest and Hermes Fund Managers in recent years.

AMG shares jumped by 7% to hit a six month peak following the acquisition announcement in July.