Fund Management Updates
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Smaller transactions between asset managers are running at the hottest pace in almost 15 years, while businesses are looking for tactical acquisitions instead of larger, more risky purchases – many of which have failed in one of the world’s most fragmented sectors.
According to data from Refinitiv, there were more transactions worth less than $ 1 billion between asset managers in the first nine months of this year than ever before. The transactions, which are intended to increase performance rather than reform companies, also increased by 5% in the same period last year.
“We expect the trend of tactical, smaller M&A transactions to continue as asset managers look for ways to improve their growth prospects,” said Morgan Stanley analyst Michael Cyprys.
Cyprys added that instead of trying to absorb a major competitor, asset managers will buy new products and new ways to reach customers.
“While scale is still a key element of success in this sector, it’s ultimately about the right solutions,” said Janis Vitols, head of asset management investment banking at Bank of America.
He added that several large asset managers were also reluctant to take possession of skills and divisions they already possessed, which posed a risk of culture clashes and caused problems that required large amounts of management time.
Fierce competition for new investors and a steady drop in fees caused the transaction across the sector for a long time. The asset management industry is dominated by a select group of titans, led by BlackRock, Vanguard and Fidelity. At the other end of the scale are smaller boutiques that thrive by focusing on specific sectors.
In the middle sits a piece of asset managers who have to decide whether to seek their scale through a major transformational transaction or to expand to a more tactical approach to new areas.
Asset managers were increasingly looking for technology and new growth areas to compensate for declining fees and allow for a boom in retail investors. Hot areas include private debt and real estate markets, and products that refer to environmental, social and corporate governance statistics, or ESG. Another important trend is the growing demand from investors for a larger adjustment of portfolios and the use of models to help them choose a mix of stocks and bonds.
“M&A activity has increased and a number of transactions this year have focused on expanding the operations capabilities of asset managers,” said Jeff Stakel, CEO of Casey Quirk, a global consultant for asset management strategies owned by Deloitte.
Stakel said that the current pursuit of mergers and acquisitions includes expanding the geographic reach for asset managers, and that transitions can be enhanced through financial technology groups and boutiques that can enhance and enhance existing business models.
Among fintech-oriented transactions in recent months, Bought JPMorgan OpenInvest, which helps financial advisors build ESG portfolios, and Campbell Global, a forest management and timberland investment firm. In June also JPM Nutmeg bought, a British digital adviser, who valued the platform at £ 700 million. Vanguard Just Invest bought in August, another small wealth manager focusing on direct indexing that offers custom portfolios and is expected to grow rapidly in the next few years.
However, some larger transactions have also appeared. Earlier this year Wells Fargo for sale its asset management business in a $ 2.1 billion transaction to private equity firms GTCR and Reverence Capital. Bank of Montreal sold its foreign asset management business to Ameriprise in April.