Schroders Studied M&G Deal to Build $1 Trillion Fund Manager

Schroders Plc spent months exploring a potential acquisition of M&G Plc, a deal that would have created a U.K. fund powerhouse overseeing more than $1 trillion of assets, people with knowledge of the matter said.

London-based Schroders was working with a partner earlier this year to consider a breakup of M&G by splitting its asset management operations from its pension and insurance unit, according to the people. It recently abandoned the idea after deciding M&G would be too expensive, the people said, asking not to be identified because the information is private.

The deliberations by Schroders, already the U.K.’s biggest standalone asset manager, never led to any formal discussions with M&G, the people said. Shares of M&G have more than doubled from their low in March 2020. The company’s stock fell 0.8% as of 9:12 a.m. Thursday in London, giving it a market value of 5.7 billion pounds ($8 billion).

An acquisition of M&G, which was spun off from Prudential Plc in 2019, would have been the biggest targeting a U.K. financial services company in nearly four years, data compiled by Bloomberg show. It would have extended a spree of deals among asset managers, which have been looking at ways to save costs through consolidation as they try to fend off pressure from low-cost passive funds.

For Schroders, a deal for M&G would have marked a major step up in its dealmaking ambitions. The group has pursued a strategy of smaller acquisitions under Chief Executive Officer Peter Harrison and his predecessor Michael Dobson, with its largest deal to date coming via the 424 million-pound purchase of wealth manager Cazenove Capital Holdings Ltd. in 2013.

Industry Consolidation

M&G managed 367 billion pounds at the end of last year, spread across equities, bonds and property funds as well as infrastructure and alternative investment offerings, according to its annual report. It also sells a variety of pension, retirement and insurance products to savers in the U.K. and Europe. The company has been pushing further into areas like wealth management, buying the Ascentric digital investment platform last year.

Schroders oversaw 672 billion pounds in assets as of March 31. The firm saw a number of strategic advantages to a tie-up, including the potential to accelerate growth in Asia by marketing M&G’s funds through its distribution network in the region, the people said. Representatives for Schroders and M&G declined to comment.

M&G CEO John Foley has had to manage a series of challenges at the firm, which temporarily froze redemptions at a flagship property fund and witnessed outflows from retail investors spooked by market volatility during the pandemic. He also ordered a review of the firm’s culture following a Bloomberg News report in 2019 about sexual harassment by a top fund manager.

Some large banks have been pushing further into money management, with Morgan Stanley agreeing to acquire Eaton Vance Corp. last year for about $7 billion. Others have sought to get out of the business, with Wells Fargo & Co. reaching a deal in February to sell its asset management operations to a private equity consortium.

Activity has also been heating up in Europe. NN Group NV said last month it’s examining strategic options for its asset management unit. Credit Suisse Group AG has also faced questions on its commitment to the bank’s fund unit as new chairman Antonio Horta-Osorio maps out his strategy.

©2021 Bloomberg L.P.

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