EUROPE – Consolidation within the fund management industry looks inevitable given overcapacity and declining profitability - but difficulties may hinder mergers, say fund management executives surveyed by Mercer Oliver Wyman.
The consensus in the investment community is that there will be continued consolidation in North America and Europe. This is despite significant consolidation of the industry over the last ten years. As costs increase, and profitability declines, and revenues remain flat or fall, the pressure on fund managers to merge, outsource or leave the industry altogether will increase.
But - in a survey by Mercer Oliver Wyman - the chief investment officers of European fund managers have highlighted difficulties in taking the merger route.
Drawing on past experiences, many conclude that most fund management mergers have not been a great success.
Says Edward Bonham-Carter, chief investment officer at Jupiter Asset Management: “Consolidation looks good on paper, but it quite hard to execute. I think you will see more of the deals that you saw in terms of ISIS and Royal Sun Alliance as people seek to de-consolidate or sell off their fund management business, which may not be a core part of their operation.”
Gerald Holtham, chief investment manager of Morley Fund Management agrees, but thinks that “some people will just withdraw from the industry and outsource”.
There is also the suggestion that companies within the industry will concentrate on one particular aspect of the fund management process instead. Alan Brown, chief investment officer at State Street Global Advisors, believes there will be a split between distribution and investing/manufacturing, with some focusing on one and some on the other.
Fund manager mergers have not all been disastrous however. Boston Consulting Group (BCG) believes Unicredito Italiano’s acquisition of Pioneer Group in May 2000 was a highly successful integration, which has produced positive results.
The consultant highlights the characteristics of successful mergers as taking place between companies which:
- retain a high degree of premerger assets
- rationalise cost overlaps quickly
- have a clear view of each other’s investment philosophies and processes
- understand how highly valuable and highly mobile asset fit into their plans, and make it a priority to retain them
- set strict dates for the completion of each stage of integration.
BCG further warns that “as challenging as acquisitions may be, the decision to stay away from them completely comes with the risk of being left out in the cold as competitors pair off”.