Deals Are Still the Best Balm for What Ails Fund Managers

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News that Schroders Plc spent months debating a purchase of M&G Plc suggests the urge to merge remains strong among European fund managers. But the plan’s failure to ever reach formal talks shows that the drawbacks of combining investment firms are still a big deterrent to actually sealing a deal.

Relentless downward pressure on how much customers are willing to pay to have their money managed, the persistent flow toward low-cost index-tracking products, and the need to invest heavily in technology all mean that scale matters more than ever in the fund management industry.

But less-than-stellar outcomes of the industry’s two big deals in recent years — Standard Life Aberdeen Plc and Janus Henderson Group Plc both suffered client outflows and share-price declines after their respective mergers — have made rivals wary of taking the plunge with transformative deals of their own. 

Schroders, already the U.K.’s biggest standalone asset manager overseeing 672 billion pounds ($940 billion), eventually decided the target was too expensive, my Bloomberg News colleagues Jan-Henrik Förster and Lucca de Paoli reported Wednesday. M&G is currently worth 5.7 billion pounds, about the same as when it was spun off from Prudential Plc in October 2019. Its 367 billion pounds of assets would have vaulted Schroders up the league table of the world’s biggest money managers.

The only European firm that has moved past the velvet rope into the $1 trillion club is Amundi SA. It became the region’s biggest fund manager through acquisitions, buying Milan-based Pioneer Investments from UniCredit SpA in 2017 and Banco de Sabadell SA’s Spanish fund unit last year.

The French asset manager continues to lead the field in dealmaking. It’s currently in exclusive talks to buy Societe Generale SA’s Lyxor business, which would add a further 124 billion euros ($150 billion) to its existing 1.7 trillion euros of assets.

The pipeline of potential transactions has been steadily building in recent years. DWS Group GMBH is in the market for a transformative acquisition, two years after talks about combining with UBS Group AG’s money management unit foundered over who would control the merged group. Credit Suisse Group AG is debating what to do with its investment business, with Bloomberg News reporting that Pimco owner Allianz SE has expressed interest in the division, while Reuters reported that BlackRock Inc., State Street Corp. and even the SPAC created by former UniCredit chief executive officer Jean Pierre Mustier are potential buyers.

The pressure to deliver economies of scale is only increasing, and the pursuit of size for size’s sake remains compelling. Amundi has shown the advantage that bulk brings, with the best cost-to-income ratio in the industry at less than 50%. At some point, the dam will burst and European fund managers will be forced to consolidate. At that juncture, it’ll be devil take the hindmost among the asset managers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

©2021 Bloomberg L.P.

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