So to have there been a number of breakups, as fund managers with established track records and a certain degree of clout sever ties from larger investment groups to set up their own shops.
“We saw it most recently with Neil Woodford leaving Invesco Perpetual to form Woodford Investment Management,” says Dampier. “That’s never going to stop.”
From talking to fund analysts, asset managers and wealth managers over the course of this month, it is readily apparent that industry professionals anticipate more M&A deals to happen in the coming year.
Economies of scale
Deciding to pursue a merger or acquisition is not only a defensive strategy to cope with a harsher regulatory environment. There are some obvious pros to banding up with another fund group.
For one thing, valuations of UK asset managers, in general, remain at historically low levels. There are also certain cost and market synergies that can be achieved through efficient M&A deals.
“A lot of the industry has struggled to outperform benchmarks because of challenges with asset allocation and stock selection in the UK,” says Richard Champion, deputy CIO at Canaccord Genuity Wealth.
“Many active equity managers were overweight UK small-caps prior to last year, which would have done them no favours in 2016. Merging with another group might seem like a more efficient option because you can combine back offices, investment offices and broaden your depth of market research.”
Managing director at Chelsea Financial Services Darius McDermott agrees: “It is getting harder and harder for asset managers to make money given the general downward pressure on fees and increased regulatory burden.”
