Will

Old Mutual's

deal to buy Boston's

United Asset Management

turn out to be Pilgrim's progress?

Now that Anglo-African insurer Old Mutual is buying up the UAM umbrella,

Pilgrim Baxter

, a high-octane performer within UAM's stable, could find itself in the sweet spot as the UAM affiliates renegotiate separate revenue-sharing deals with the new parent.

The $2.2 billion deal -- announced Monday and the latest in a spate of deals by foreign firms buying into the U.S. asset-management business -- includes $760 million in UAM debt that Old Mutual will assume. UAM, a publicly held outfit that acts as a holding company for its asset-management firms, gets to tap Old Mutual's distribution network in South Africa and the United Kingdom.

Old Mutual, meanwhile, gets a fast way into the U.S. asset-management sector with UAM's $188 billion in assets under management. Aside from Pilgrim Baxter, UAM also owns the

First Pacific Advisor

funds, the

Clipper

funds and the

Provident Investment Council

offerings on the retail side. (For more on the deal, please see our earlier

story.)

Under UAM's holding-company setup, these affiliates share revenue with the parent. Now, Old Mutual must set up new parameters with each of UAM's properties.

Pilgrim Baxter gets a chance to renegotiate its contract with its parent company right at the time when it is one of the favored children. "It's the most well-known retail brand UAM has,'' says Darlene DeRemer, a mutual fund consultant with the firm

New River

.

Pilgrim Baxter's fund family PBHG is coming off a phenomenal year in which its go-go investment style that leans heavily on technology and small-capitalization stocks proved favorable. Three of its funds finished 1999 with triple-digit returns, according to

Morningstar

. The high-growth shop with a strong technology specialty started out the year with $10 billion in assets under management. Through last month, the fund company has added roughly another $5 billion in new investments, according to

Strategic Insight

of New York.

Both Old Mutual and UAM say the new conditions will be more favorable to the affiliates, though they're not giving any details. The company isn't saying what the new revenue-sharing agreements will be, but it says it wants to retain talent. Pilgrim Baxter isn't talking, either.

Regardless, new management brings changes, and there may be defections. Shareholders might want to watch how the deal unfolds for PBHG, which already has witnessed some high-profile departures. In the past year, two money managers departed the firm, the most recent being Frank "Quint" Slattery, an investing wunderkind, who left in April to start his own hedge funds. A year ago, manager Jim McCall left to manage funds at

Merrill Lynch

.

Still, observers put mainly a positive spin on the new developments. "Pilgrim Baxter will have a parent that's focused on growing the business rather than who is focused on stability,'' says mutual fund consultant Burton Greenwald of Philadelphia.

During two conference calls today -- one with analysts and the other with journalists -- UAM described PBHG in glowing terms. But there have been other times when the relationship was strained. Two years ago, UAM was ready to let the unit go, as the fund company was bleeding assets amid shaky performance. After some interest from insurer

Nationwide

, the deal fell through. Since that time, PBHG has surged amid the boom in tech stocks last year.

PBHG also could get some help from the new parent in distribution. While UAM viewed itself solely as a holding company and provided little marketing and distribution support, Old Mutual will use its distribution channels to pump the UAM products.

While the holding-company setup "was a model that worked a decade ago, it doesn't work now,'' says Jim Orr III, UAM's president and chief executive officer, about the structure that's been UAM's hallmark. "We were unable to get horizontal distribution.''

Aside from a few standouts, the firm has been losing about a 10% a year in assets, according to analysts. Orr attributes the declines to the company's lack of centralized distribution and many of its affiliates' out-of-vogue value investing styles.

Old Mutual will pay $25 a share for the asset-management concern, a discount to what some asset-management businesses have garnered in recent sales. At that price, Old Mutual is paying about 1.2% of assets under management. But just last week,

Wanger Asset Management

fetched a price tag of $450 million, or more than 6% of its asset base of $7 billion in assets, from buyer

Liberty Financial

.