The new AUM line that asset managers need to hit to gain scale has more than doubled to at least $25 billion, at least in the eyes of one insurer now exiting the advisor-sold asset management business.

Mehran Assadi National Life Group CEO

Yesterday Cincinnati, Ohio-based Western & Southern Financial Group and Montpelier, Vermont-based National Life Group unveiled a deal for Western & Southern's Touchstone Investments [profile] to buy assets of National Life's Sentinel Asset Management [profile]. National Life president and CEO Mehran Assadi explained the deal in an internal memo, a copy of which was seen by MFWire.

The National Life folks thought that Sentinel "could be a successful boutique asset manager" if it grew to $10 billion to $12 billion in AUM, Assadi explains in the memo. Yet in light of the continued rise of ETFs and index funds, the recent flows woes of active equity funds, and the controversial DoL rule that might (or might not) start taking effect later this year, Assadi writes, he revised his Sentinel scale target "over the past 9 months."

"In today's world a sub-scale operation is challenged to succeed. To truly compete we would need to be much bigger — in the range of $25 billion to $40 billion," Assadi writes. "That would require a significant amount of capital for acquisitions."

Instead, National Life is selling the business to Touchstone, while keeping the Sentinel Investments piece that manages its general account and while helping Sentinel employees find new roles within Touchstone or National Life.

Meanwhile, the Sentinel deal is expected to push Touchstone's AUM to $20 billion, a bit shy of Assadi's target range. Perhaps more deals are in Touchstone president Steve Graziano's near future. 

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