The asset management industry has enjoyed some fruitful years since the financial crisis. A tailwind of QE-inspired markets and inflows has seen revenues surge, but this has masked some of the challenges building up. Growth is stalling, assets are being lost to ETFs and margins are under pressure. Fund pricing has come under enormous scrutiny, as the rapid rise of ETFs and new regulations governing how asset managers and distributors are paid forces active managers to rethink business models. M&A is an obvious solution.
Boutiques will survive and perhaps even prosper, as long as innovate and alpha continues. However, many houses are stepping up the search for scale and breadth in order to combat the industry’s challenges. The Janus Henderson deal is a clear example of this. The merger will create a combined entity with $320bn of AuM and instantly launch it into the top 50 of global asset managers. Crucially, the products and distribution footprints are complementary, meaning it is not just about cost synergies. Scale and the ability to cross-sell through combined client bases in Europe and the US will create a global player. We like asset managers for many reasons – including the scalable business models, attractive margins and strong cash generation. However, with flows drying up, M&A could be key in unlocking further shareholder value. Speculation is rife more deals are on the way. Pioneer has been lined up for sale.
The likes of Schroders , Amundi and Man GLG have large war-chests ready for when the right deal comes along, and even smaller Italian managers like Anima and Azimut are hunting. While US groups are no doubt trawling through Europe for cheap deals, future buyers may come from further afield. Janus Henderson is interesting because it is a truly global deal, not just because it involves houses from both sides of the Atlantic. Japanese insurance company Dai-ichi, Janus’ largest shareholder, has committed to support the deal and raise its stake in the combined entity. It has effectively signed off on the merger. Interestingly, Dai-ichi has More fund manager M&A likely T 7 also recently formed a JV with Mizuho Financial to create one of Asia’s largest asset management firms. Both are looking to expand overseas via partnerships and maybe by M&A. Mizuho itself has recently bought a stake in Matthews International, to complement its existing large holding in Aberdeen Asset Management. Perhaps in time it will achieve its global ambitions by bringing these entities together.
Japanese involvement in asset management is quietly growing for now, but global growth ambitions are clear. Could they be the future consolidators in an industry increasingly going global? Maybe. What is clear for now is M&A will feature prominently in the coming months and years. Janus Henderson could be a useful template for those involved.