Wonks think a wave of asset management mergers is inevitable
Across the European continent, a surge of mergers and acquisitions among asset managers has begun.
Yesterday, Italian and French giants Generali and Natixis agreed to a €1.9 trillion (£1.61 trillion) merger to create the second largest asset manager in Europe. Meanwhile, BNP Paribas recently bought out AXA’s investment arm, and rumours continue to swirl about Amundi taking over Allianz.
And yet, the UK finance scene is silent. In recent years, the only movement on the scene that analysts can recall is Premier Miton’s takeover of Tellworth, and that was for less than £4m.
While there have been rumours, like Liontrust looking to buy Artemis, and constant whispers of Brooks Macdonald being bought out, nothing seems to have come to fruition in the UK.
So, where are all the mergers?
Amin Rajan, chief executive of asset management consultancy CREATE-Research, was firm that there will soon be a wave of mergers among the asset managers, stating that the “large majority are sub scale”.
But while mergers seem like an inevitability to some analysts, others are sick of waiting for a prediction that isn’t coming true.
“I’ve been saying there will be [mergers] for the last five years and been totally wrong,” Ben Yearsley, director of Fairview Investing, told Morning Wire.
A key reason for the slowdown in mergers brought up by analysts is the failure of previous attempts.
With the most significant merger of the last decade being Aberdeen and Standard Life, creating Abrdn, and Liontrust’s failed attempt to buy GAM still fresh in the minds of CEOs, some may be reluctant to follow that path themselves.
“Just because one asset manager merges with another, if they’re both struggling, you just end up with a bigger, struggling asset manager, which is no good to anybody,” said Darius McDermott, managing director of Chelsea Financial Services.
Plenty of asset managers have been struggling, with share prices down across the board for listed firms.
“Asset management generally has been a challenge,” admitted McDermott, noting the strong flows away from the active space towards index funds.
However, this might actually encourage more mergers, simply to grow to the scale where UK businesses are able to compete with the “US behemoths,” said Rajan.
Companies like Jupiter, Liontrust and Abrdn “probably need to do something,” Yearsley said, as their share prices are all down by more than half over the last year and stuck in the ‘squeezed middle’.
“The intriguing one is Schroders,” said Yearsley.
The “blue chip name trading at bargain basement price” should be watched with interest, he said, especially given that during former CEO Peter Harrison’s career, the firm’s assets under management doubled, even as its share price halved.
“Most of the big names from the glory days – Mercury Asset Management, Philips & Drew and Henderson Global Investors – have disappeared without trace under foreign ownership. That trend seems irreversible – for now,” added Rajan.
One source familiar with the Gerenali-Natixis tie-up predicted that sell-offs from insurers with asset management businesses, like Legal & General, Royal London and Aviva, would be most likely to follow the European trend.
“Some of these groups, if they have any strategic sense, should be on the front foot and consider options,” they said.