New normal
One of the primary reasons consolidation is on the cards is because of the threat from passives in a low-return world. Portfolio Adviser recently surveyed a group of global asset managers with UK operations to get a better understanding of where they think the industry will be in several years’ time.
Fifty four per cent of respondents said the success of passive funds would result in fewer assets under management for active managers. Seventy seven per cent said the threat from passives would force them to lower their fees, while 69% said they would be pushed to develop their own passive products.
“Since the financial crisis, we have entered a lower-return world, which has been exacerbated by quantitative easing and liquidity issues,” says Keith Baird, director of equity research financials at Cantor Fitzgerald.
“In that context, net returns to investors have been eroded, so many have made the switch to passives. The idealistic philosophy the UK regulators are taking is that by reducing the level of costs, you can improve the level of returns.”
In the UK, the imminent arrival of Mifid II and Brexit negotiations, as well as further reviews carried out by the Financial Conduct Authority, and continued competition from cheaper passive alternatives, has created the perfect storm for further consolidation in the sector.
“I always thought that was the trend anyway,” says a slightly bemused Mark Dampier, Hargreaves Lansdown’s research director.He recalls that people in the industry have been talking about the threat of consolidation since the stock market crash of 1987.
Before Standard Life and Aberdeen there was the £5bn deal between Henderson Group and Janus Capital last October.
There has also been a smattering of smaller, yet notable, deals in recent years, including the acquisition of Alliance Trust’s investment arm by Liontrust, Amundi’s €3.5bn (£3bn) takeover of Pioneer Investments and Schroders’ purchase of Cazenove for £424m.
