Finance

Fund bosses see ‘Darwinian forces’ spurring M&A deals

The pace of merger and acquisition activity won’t let up, say some of Europe’s top fund bosses.

They predict asset managers will continue to seek deals to build expertise in booming asset classes and that smaller outfits will fall prey to rivals looking to add muscle.

Financial News sent a series of questions to executives at the firms that were shortlisted for our Asset Management Awards 2021 to get their thoughts on the trends shaping the sector.

Tobias Pross, chief executive of Allianz Global Investors, said:

“M&A firepower in the global asset management market started at a strong pace this year and has continued to accelerate across regions due to recovered capital markets and continued favourable market conditions supported by central banks.”

According to Pross, a desire among asset managers to learn more about alternative asset classes and to fend off competition from lower-priced passive funds are among the factors driving them to consider deals.

READ A State Street, Invesco deal would provide ‘critical mass’ to take on BlackRock

Consultancy Casey Quirk predicts that 2021 will be the busiest year for transactions since 2009.

Notable deals that have taken place since January include Goldman Sachs’ purchase of Dutch asset manager NN Investment Partners, as well as Amundi’s €825m acquisition of Lyxor.

AssetCo, which is chaired by City veteran Martin Gilbert and looks to buy stakes in wealth management companies, has made several deals this year, including the outright purchase of Edinburgh-based Saracen Fund Managers in May.

Erich Gerth, CEO of BlueBay Asset Management, said the desire to offer differentiated products is one factor behind recent deals.

“However, for those asset managers who want to be leading players, this alone will not be enough to retain market share,” he said.

“Instead, we believe future M&A deals will be driven by this, as well as larger houses wanting to expand into private markets, and the need to offset continuing fee pressure by gaining scale in mainstream markets.

“You’ve seen this start to emerge, but we believe it will become more pronounced and mainstream.”

Other factors, such as pension funds and other owners reducing the number of managers they do business with, will also act as a catalyst, added Gerth.

Building scale is a key consideration for some asset managers pursuing deals.

According to a report published by consultant Bain in February, “mega managers” with more than $1tn in assets such as Vanguard and BlackRock scooped more than 50% of all new money that was ploughed into the industry last year.

Last month the Wall Street Journal reported that State Street Global Advisors, which oversees $3.6tn globally, is in talks to merge with Invesco — an Atlanta-based rival with $1.5tn in assets.

Gavin Rochussen, boss of Polar Capital, said “Darwinian forces” will drive further M&A activity as asset managers with unsustainable businesses either acquire to survive or are snapped up by larger rivals.

“The cost of increasing regulation and margin fee pressure will require firms to have scale to remain profitable and this inevitably brings consolidation in the industry,” said Rochussen.

Eoin Murray, head of investment at Federated Hermes, said M&A deals are more commonplace now as asset managers “bid for survival and future growth”.

READBrace for the rise of ‘mega managers’ as M&A heats up

Deals that provide private markets capabilities or facilitate the integration of responsible investment will remain popular, he said, particularly as developing these expertise organically can be lengthy and expensive.

“Deals that can provide managers with a range of benefits from access to a specific investment team, data insights or platform enablers supporting the growth areas identified above will dominate the landscape,” said Murray.

However, not everyone is convinced that pursuing deals to become bigger is the right approach.
“Acquisitions can never be a substitute for organic growth,” said Valerie Baudson, CEO of Amundi, Europe’s largest asset manager.

In December 2016, Amundi acquired Pioneer Investments from UniCredit and has since made struck several other deals to bolster its presence in markets such as China.

“It can accelerate growth, but it cannot be instead of growth,” said Baudson.

“Acquisitions have never been a question of scale. It’s a question of reinforcing a business model and a clear strategy.”

To contact the author of this story with feedback or news, email David Ricketts

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