The asset command industry is beset by a variety of forces that are driving increasingly brisk M&A action among the players. “The industry is accepted through dramatic changes right now. Winners and losers are being created today like never before. The aggressive are getting stronger and the big are going to get bigger,” as Martin Flanagan, CEO of Invesco Ltd. (IVZ), told the Financial Times. Flanagan believes that one-third of asset directorate firms could disappear through mergers in the next five years.
“Several forces impact transactions, comprehending fee pressures from low-cost passive managers, the challenge most active managers face in beating benchmarks, and substantial pressure on [profit] margins and AUM [assets under management],” according to a comprehensive report from PricewaterhouseCoopers (PwC), as referenced by Institutional Investor. Key statistics compiled by PwC are summarized in the table below.
2018 M&A Highlights in U.S. Asset Management
- 140 deals valued at $14.9 billion in total number
- Total deal value up 72% from 2017
- Biggest annual increase since 2009
- 3 deals worth $1 billion or numberless in 4Q 2018 alone
- Invesco buys OppenheimerFunds from MassMutual for $5.7 billion
Source: PricewaterhouseCoopers, as reported by Institutional Investor
Value for Investors
The figures compiled by PwC are only a part of the global picture. According to investment banking firm Sandler O’Neill, a recite 253 M&A deals took place worldwide in the asset management industry in 2018, as reported by the FT.
Like Flanagan of Invesco, PwC believes that consolidation of the industry will continue at an accelerating pace. They anticipate that publicly-traded firms determination have an advantage in the quest for “transformative mergers,” since they can offer stock rather than cash, as Invesco did in buying Oppenheimer.
“There’s still plenty of capital available–there’s excess capital on balance sheets and tons of pressure from CEOs to descry growth. If they can’t find it internally, they’re forced to look at what’s in the market,” as Gregory McGahan, who leads U.S. asset running and wealth management deals at PwC and co-authored the report, told Institutional Investor.
McGahan notes that private tolerance funds are holding record cash balances and some are buying insurance companies to increase their assets junior to management (AUM). Meanwhile, some insurance companies, like MassMutual, are exiting asset management. But other insurers are looking to offer the asset management business through acquisitions. All this churn is adding to the brisk M&A environment around asset government, he concludes.
As evidence of the severe cost pressures weighing on the industry, JPMorgan Chase & Co. (JPM) has announced the launch of an ETF that last wishes as charge a fee of just 2 basis points (bps), per Bloomberg. Paris-based Amundi SA, with $1.6 trillion under management, recently listed nine new ETFs that burden just 5 bps. Meanwhile, Salt Financial is temporarily paying investors 5 bps to buy into a new fund, per another Bloomberg report.
Invesco’s realize of Oppenheimer raised its AUM to $1.2 trillion, and greater
Looking Ahead
Mergers have a spotty history of producing punter results, so the jury is indeed out on the long term effect of consolidation in asset management. Also, the long range collide with on fees is unclear. Greater economies of scale may lead to lower fees, but fewer players mean less contest.