Jump to content
  • Luuk Jacobs
    Luuk Jacobs

    Sign in to follow this  

    Mergers & Acquisitions in Asset Management – the solution to market pressures?

      Time to read: 4min

    Change is afoot. Mergers & Acquisitions (M&A) in Asset Management is becoming the norm.

    The UK Asset Management industry has seen two major merger announcements in the last six months. Blackrock CEO, Fink said in a Reuters interview in April 2017 ‘this is definitely not the end’ and a further wave of industry consolidation is expected. Recent PwC research among 185 global CEO’s in Asset and Wealth Management (February 2017) indicates 52% are considering strategic alliances, while 42% are planning a merger or acquisition. So why is there this focus on consolidation in the industry?

     

    The rise of passive

    Within a world of overall low investment return, active management loses its appeal against the low fee passives and puts pressure on the active fees or even moves the active houses towards more passive investment strategies.

     

    The regulator

    The regulatory environment puts significant (cost) burden on the industry and in the last few years the number of staff within risk and compliance departments has grown exponentially. The regulator would like to see fewer players on the market to control them easier and make the risks more transparent. And last but not least, when within active managed funds the performance is not above average, the regulator is challenging the justification of the fees charged.

     

    Being stuck in the middle

    An Asset Manager can find themselves in a situation where their offering is simply not broad or scaled enough and hence they often can’t deliver the investment performance, equally they are too big to be an efficient and lean niche player.

     

    The valuation of asset managers

    A third factor within the UK specifically is the low valuation of UK Asset Managers. Within the above scenarios, M&A can create economies of scale for reducing cost by combining back offices, investment offices and research capability and thus higher valuations.

     

    Diversification

    However, there are also other considerations for M&A. Diversification of product, clients and geography make the Asset Managers less volatile and more resilient to changes in the environment and/or economy.

     

    Is M&A the solution to market challenges?

    M&A is not without its own challenges of execution. Integrating two organisations has vast operational implications and raises many questions. Can the economies of scale be realised within a short time frame? Can investment strategies efficiently be combined? Even with the same key investment systems in place, have they been set up similarly or does one of the parties effectively have to redesign its operations to fit the other parties set up. Does the ‘on paper’ fit of company cultures match also when staff is brought together.

     

    The list of potential obstacles is endless and the full benefits realisation through M&A often take two to three years to materialise. Existing management time can get (fully) absorbed during this time, whereas the world keeps moving on. Market, technology and regulatory changes continue to demand highest attention to stay with the pack, let alone keeping or getting ahead of the pack.

     

    M&A is never an easy road to travel. It will often result in an organisation being in flux and with it a heightened risk of losing employees. Fund managers with established track records may see this as an opportunity to break away from their motherships and set up their own shops.

     

    As the M&A trend becomes more entrenched in the Asset Management industry, it will be interesting to see where we are at the end of the first wave in three years’ time and if by that point, will they have seen the full benefits materialised?



    Sign in to follow this  

    Share this  

    Member Feedback



    Recommended Comments

    There are no comments to display.

    Become a member to read more and join the discussion

    Members can read and contribute to discussions

    Apply

    Register now for free access.

    Create your account

    Sign in

    Already a member? Sign in here.

    Sign In Now

  • Related Content

    • Colin Ng
      By Colin Ng
      Came across this very interesting (and funny) read in today's FT
      https://on.ft.com/2CpAZIC
    • Rob Carter
      By Rob Carter
      It’s 2017 and technology surrounds us as never before. Asset Managers are investing a lot of time and money to get to grips with both FinTech and the new kid on the block RegTech. At AlgoMe we’re fascinated by the way technology is changing the world of work and skills. We’ve put together some key technology themes which we think will be big this year and what to watch out for too.
       
      Big data analytics
      Big data is creating a buzz across the business world and is one of the most important challenges and opportunities facing financial businesses today. IDC, the global market research, analysis and advisory firm, predicts that the big data and business analytics market will grow from $130 billion to $203 billion by 2020. The problem is, firms collect swathes of customer data, but without the tools to mine these so-called ‘data lakes’ correctly, they are not getting analytics they can develop actionable insight from. Done correctly, it’s immensely valuable and more than just analysing customer behaviour – analytics can be used to predict the regulatory and operational risks the firm itself could face. For example, using technology to analyse the root cause of any previous regulatory breaches could prevent the same mistakes from recurring in future. The FCA has acknowledged that it too could use big data analytics to reduce the reporting burden on firms. Last year it launched the Regulatory Sandbox to help firms innovate and this has already produced some interesting results in the world of banking technology. Some companies are launching Data Analytics as a Service for the Asset Management industry and the knock on effect will be a demand for professionals with new skill sets to embrace this new opportunity.
       
      Machine learning
      No doubt you’ve probably heard of robo-advice, but there are also other ways that machine learning can be applied in financial services. Possibly the most disruptive of technologies to break into the financial services space, you should expect to hear more about machine learning and robo-advice (with a soupçon of AI thrown in) this year.
       
      Just last month LendingRobot, a specialist online investment-management service or so-called “robo-advisor,” announced its launch of a hedge fund which is administered without human intervention. Silicon Valley has also woken up to the opportunities and companies like Sentient Technologies will be grabbing headlines this year.
       
      P2P platforms and other lenders use algorithms to make lending decisions and predict bad loans. There are also firms which use machine learning to scour social media and news sites for trends to give their clients signals to trade on. The FCA has noted that because machine learning can automatically refine processes in reaction to user input, they could replace some of the complex, high volume tasks firm need to perform to remain compliant.
       
      For now, there’s no need to grab your coat and head for the door; technology hasn’t taken over quite yet! However, understanding how these trends will impact your business area will be essential in the coming months. 
       
      Cybersecurity and fraud prevention
      With MiFID II a big headline for 2017, the need to adopt new technology to support compliance has never been more apparent. The regulatory burden for Asset Managers can be lightened by RegTech as it can be used effectively to monitor transactions, trades and communication in real time, all the time. By correlating information gathered from different sources, powerful calculation engines can highlight errors, gaps and current trends in financial crime to help firms shore up their defences. With financial institutions a regular target for hi-tech cyber criminals, fighting fire with fire has never been more important. We expect this area to become more central to the industry in the short term.
       
      Automation
      The Asset Management industry suffers no shortage of data but it is faced with management and automation challenges. Organisations are increasingly looking towards technology in their operating models to simplify administration and, where possible, to reduce the costs associated with fund managers doing things manually. It’s a great way to reduce the pressures on margins and increase overall performance.
       
      In 2017, you can expect to see a lot more companies like CG Asset Management adopt automation. Performance reporting, regulatory reporting, investor communications and fund expense management are key pressure points for companies struggling to move away from the legacy systems they have always used or for those who have bought pick and mix technologies that will not integrate seamlessly.
       
      This is a major investment for an organisation and a positive direction for the wider industry to move towards – it will also mean bringing your teams up to speed with new platforms and technologies very swiftly.
    • Guest
      By Guest
      Guest blog by Martin Rich, Co-founder and Executive Director of Future-Fit.
       
      Social responsibility and sustainability have been hot topics for some time now. What was once a trend has become the norm in the world of investment management. You’ve only to read articles in Bloomberg and the Wall Street Journal to find this in evidence for quite some time. But when we look a little deeper, beyond the headlines, how do we all measure up as businesses?
      Think about your company.
       
      Ask yourself this: is my company truly sustainable, in everything it does and sells? If not, then how must the company change before it is? And do we simply measure ourselves against others, or what we really believe a sustainable future needs to be?
      If you’re struggling to answer these questions, you’re not alone: it’s hard to assess real progress if the destination is unclear. And until now we’ve had no clear, credible and actionable definition of what being a truly sustainable company really means.
      Unfortunately the myriad corporate sustainability rating and ranking systems currently in existence don’t hold the answer because they focus on today’s best practice rather than tomorrow’s required practice. To see why this is a problem, let’s take an example.
       
      The Dow-Jones Sustainability Index gathers data from over 3,400 listed companies around the world between 80-120 industry-specific questions focusing on economic, environmental and social factors that are relevant to the companies’ success, but that are under-researched in conventional financial analysis.  It currently awards Thai Oil a total sustainability score of around 87%. There is no reason to doubt that this particular oil company is doing more than its peers. But in the face of climate change and a de-carbonised future, the very nature of the oil sector’s current business model is unsustainable. In that context is such a celebration of relative performance warranted? Can we really expect Thai Oil’s CEO and employees to question the carbon-intensive nature of their business if the given sustainable score is 87%?
       
      Yet given the scale and complexity of the problems we face as a species, being less bad than others is just not good enough. Rather than merely focusing on today’s best practice, we must measure the gap between where business is now and where it needs to be.
       
      We need a benchmark grounded in a scientific understanding of how the world works. One that identifies the minimum acceptable level of environmental and social performance every company must attain if society – and thus their business – is to prosper long term. One that defines the breakthrough point beyond which a company starts delivering positive value. One that inspires business leaders and employees – in other words, you – to push for truly innovative solutions which create greater value in a sustainable future.
       
      That’s the purpose of the future-fit® Business Benchmark. A future-fit® business is one that in no way undermines – and ideally increases – the possibility that humans and other life will flourish on Earth forever.
       
      The first benchmark, published in May 2016, comprises a set of 21 future-fit® goals that collectively draw a line in the sand that marks the transition point beyond which a business starts helping – rather than hindering – society’s transition to a sustainable future. Combined with a corresponding set of metrics, the benchmark enables those in the business to set their own targets, prioritise and measure their continued progress.
       
      Ultimately, all companies should be constantly striving to improve their extra-financial business performance. But this must not be simply based on comparison to others, but rather through seeking to achieve tomorrow’s required practice in pursuit of a flourishing future.
       
      Will you be featuring in the future-fit® Business Benchmark for 2017?
    • Andy Milner
      By Andy Milner
      The assets of the largest 20 firms increased for the fourth consecutive year by 18.3% to $40.6trn in 2017 - the highest concentration for at least 20 years.
       
      Is there an end to this trend in sight?
       
       
      Concentration in asset managers hits highest level on record as firms are warned to shift away from traditional models
      WWW.INVESTMENTWEEK.CO.UK Top 500 firms' assets reach $93.8trn  
    • Eva Keogan
      By Eva Keogan
      2018 was always going to be an interesting year. Kicking off with MiFID II, moving to GDPR in the late Spring and of course this Summer brought a surprise World Cup Semi Final and a blistering heat wave (but a still-stagnant Brexit) suffice to say, it’s been a busy time all round.
       
      At AlgoMe we think it’s really important to understand what our wider community is thinking and to get under the skin of the burning issues for 2018.  As result we’ve created The AlgoMe Industry Pulse report which we’ve published today. It has looked into these key issues and themes, from regulation through to Brexit, unearthing some interesting and useful insight. We found optimism and change, along with a level of insecurity too.
       
      What drove these varied responses? Well optimism came in the shape of the 59% who believe Gender Pay Gap Reporting will improve the career progression of women whereas change with learning MiFID II and GDPR is affecting around two thirds of people. Conversely Brexit is creating uncertainty on a number of levels – people want to stay in London, but they’re concerned about their jobs and whether their companies will move away. 30% of those surveyed felt Brexit is a risk to their job security. While 68% believe their companies will stay in the UK, only 54% of individuals said they will definitely stay put versus 27% who are actually considering relocating. When it comes to relocation people chose Dublin, Paris and Amsterdam as the top three choices of European cities to move to. Additionally, regulation will take add to felt insecurity this year with MiFID II impacting 64% of people’s roles and GDPR 60%. Diversity in the workplace is considered important by 64% with 20% remaining neutral and 16% in disagreement, demonstrating there is still a lot of work to be done in both these areas.
       
      We’ve developed 5 key insights which summarise the in depth research:
       
       1. Job confidence pre-Brexit: A workforce in need of reassurance
      Industry and government need to act fast to gain the confidence of the sector as 30% are feeling insecure about Brexit and believe their jobs may be in jeopardy.
       
      2. Will London remain the financial centre of Europe? Best to leave the lights on post-Brexit
      The City is definitely open for business; our industry sector is loyal to London and a majority of workers want to stay here post Brexit.While 27% of respondents expressed they would move as a result of Brexit and 14% of felt strong about this, most people (54%) would not consider moving as a result of Brexit, whereas 68% believe their companies will remain in the UK.  There’s no clear leader in Europe to replace London when it comes to the most desirable places to relocate to and work from; Dublin was the top location (25%), followed by Paris (21%) and Amsterdam (19%).
       
      3. Regulation is a necessary inconvenience:
      Undoubtedly 2018 is a big year for the regulatory calendar and this is having an impact in the short and long term, so we expect temporary upheaval while MiFID II and GDPR are bedded into to working practices
       
      4. Gender Pay Gap – Unwelcome truths for some, seen as much needed by the majority:
      The implication for Gender Pay Gap Reporting is, it will continue to highlight industry inadequacies for some time; transparency and action should expedite change
       
      5. Diversity – More change afoot needed to accommodate a changing workforce:
      Diversity will need to be top of the agenda across the board to effect meaningful progression across the industry
       
      We hope you enjoy this latest report and find the insights valuable to yourselves as professionals, you can download your free copy here.
Debug
Debug info:
You may be asked to provide the below information to an AlgoMe administrator if you are facing any problems with the app:
appcms
modulepages
controllerpage
topics/forum ID29
page ID
PHP user agentCCBot/2.0 (https://commoncrawl.org/faq/)
ThemeAlgoMe v2.1.1a
Mobile appNO
Member ID
×

We use cookies to give you the best possible experience. If you continue, we’ll assume you are happy with this. For further information, see our Privacy Policy.