AMG to Buy ESG Fund Manager Parnassus for $600 Million

Text size

Affiliated Managers Group,

the big holding company for asset managers, has agreed to buy Parnassus Investments, the socially responsible investment firm, for $600 million, according to a person knowledgeable about the transaction.

The move demonstrates the popularity of environmental, social, and governance, or ESG, investing. In recent years, Parnassus, based in San Francisco, has grown swiftly as the vogue for sustainable investing strengthened and as the firm developed a reputation for reliably good performance. It has five mutual funds, all fossil-fuel free.

Sustainable investing, also known as ESG investing, has been a huge and steady trend in recent years. In 2020, nearly a quarter of all fund flows went into sustainable funds. That could gain strength as U.S. retirement plans open up to sustainable investing.

About a third of the $51.4 trillion of U.S. assets under management is sustainably managed, according to US SIF, the trade group for the sustainable-investment industry. Indeed, a survey by investment manager Schroders found that 69% of retirement-plan participants said they would or might increase their overall contribution rate if their plan offered ESG options.

Both Parnassus and AMG (ticker: AMG) declined to comment or confirm the terms of the transaction. The transaction is subject to the agreement of Parnassus fund shareholders. 

Parnassus is approximately 35% owned by its employees and 65% by the founder,
Jerome Dodson,
and his family. It oversees $47 billion. AMG invests in independent investment managers and allows them to remain independent while providing capital, distribution, and other capabilities to affiliates such as AQR Capital Management and Yacktman Asset Management. It has roughly $720 billion in assets under management. 

In recent years, some of the most venerable names in U.S. sustainable investing have been purchased by larger entities. Calvert Research & Management was acquired by Eaton Vance in 2016, which in turn was bought by

Morgan Stanley

(MS) this year.  In 2018, Pax World Management was acquired by

Impax Asset Management

(IPX.London). Trillium Asset Management was purchased last year by Australian financial services company Perpetual. This year, AMG bought 15% of Boston Common Partners, while Boston Common’s management team and principals retained 85%.

AMG has agreed to pay Parnassus $400 million in cash on closing and an additional $200 million one year later. There is an additional performance fee, according to the person familiar with the transaction. As part of the transaction, Parnassus CEO Ben Allen and chief investment officer
Todd Ahlsten,
both longtime employees, are signing contracts to remain with the firm. Ahlsten is also a member of the Barron’s Roundtable.

Founder Dodson, 78, a longtime star investor, stepped back last year, leaving

Parnassus Endeavor Fund

(PARWX) and the funds’ board of trustees. Dodson founded Parnassus in 1984 with $350,000 from friends and family.

Write to Leslie P. Norton at leslie.norton@barrons.com