Fund Management Wrestles With a $7.2 Billion Question

(Bloomberg Opinion) -- Shares of European asset managers have rebounded this year from their disastrous 2018 amid hopes that a rally in global stock markets will persuade clients to stop withdrawing money.

But the gain posted by leader of the pack is driven as much by speculation about its future ownership as any improvement in the financial environment.

DWS Group GmbH, the asset manager controlled by Deutsche Bank AG, has recouped almost all of last year’s losses, bringing its shares to within touching distance of the 32.50 euros ($37) for which they were first sold to the public a year ago. The gains are underpinned by talk that the German lender will offload part of its remaining 78 percent stake to fund its long-mooted merger with Commerzbank AG.

Last month, my colleagues at Bloomberg News reported that German insurer Allianz SE might consider including DWS in its fund management business, which includes bond market powerhouse Pacific Investment Management Co. Last week, they added UBS Group AG to the list of potential suitors, writing that the Swiss bank might combine DWS with its fund business and spin the two off as a separate entity.

But there’s a third candidate that might prove a more strategically compelling purchaser: Amundi SA, already Europe’s biggest asset manager.

Asked last month about a potential acquisition of DWS, Valerie Baudson, a member of the fund manager’s executive committee, told Handelsblatt that her firm has a “natural role in consolidation” in Europe. The company’s history of growth has been “complemented by successful acquisitions,” she told the German newspaper.

Amundi, which manages more than 1.4 trillion euros, announced earlier this month that it had completed the integration of Pioneer Investments, the Milan-based fund manager it bought in 2017 to add about 220 billion euros of assets. So it has cleared the decks for another foray into M&A. And with 662 billion euros under management, DWS would be a temptingly large prize.

Buying the Frankfurt-based firm would create a European behemoth with almost $2.4 trillion of assets, allowing Amundi to leapfrog its way up the league table of world’s biggest fund managers. At present, it just scrapes into the top 10; bulking up would put it in about fifth place globally, but it would still be less than half the size of the top two firms: Blackrock Inc., which oversees about $6 trillion, and Vanguard Group Inc. with $5 trillion.

Interestingly, combining the French and German firms would reduce Amundi’s geographical dependence on Europe, which accounts for 80 percent of its assets. That’s largely because of DWS’s 180 billion euros of assets in the Americas; but it would come at the cost of shrinking Asia’s current 14 percent share of total assets.

For Amundi, the key attraction of DWS, though, comes in the fastest-growing sector of the asset management industry: the market for exchange-traded funds.

Amundi manages about 95 billion euros in passive management and smart beta products. It said last month that it aims to double the size of that business by 2023. Buying DWS, Europe’s No. 2 in ETFs with almost 113 billion euros of passive assets, would instantly achieve the French firm’s goal.

“I anticipate that it will be more difficult for this year in terms of net inflows,” Amundi Chief Executive Officer Yves Perrier said in February, shortly after revealing outflows of 6.5 billion euros in the fourth quarter that left funds under management little changed for the year. The Pioneer deal shows Perrier is willing to buy scale. The swift integration of the business without driving up Amundi’s overall cost-income ratio shows he can execute.

The $7.2 billion question – DWS’s current market value – is whether Deutsche Bank really wants or needs to sell the remainder of its stake. If it does, and it’s still a big if, it could finally trigger the wave of consolidation that Europe’s asset management industry has been speculating about for years.

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

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."

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