May 17, 2010 3:00 am
A year ago, asset managers were mired in gloom. The markets were at all-time lows and revenues were plummeting.
It could not be more different now. Asset managers are riding high on renewed investor confidence with rallying markets lifting first-quarter revenues and profits to record levels.
But where renewed buoyancy has spurred US fund managers such as Legg Mason to turn acquisitive eyes overseas to less mature markets, Europe's fund managers are more cautious about the cost of deals.
Aberdeen Asset Management, headquartered in Scotland, has doubled funds in a year to $171bn largely through acquisitions. But it has shelved plans for further purchases, including in the US, as the price of targets has risen.
Martin Gilbert, chief executive, last week said he would focus instead on expanding distribution of existing funds.
In an ideal world, acquisitions are the fastest way to grow, says Kevin Pakenham, managing director at Jeffries International. But success is finely balanced on price and whether acquirers tie in revenue-generating staff.
M&A in the industry is littered with expensive failures of integration, notes Michael Dobson, Schroders' chief executive.
But that is not deterring US predators. Their home market may be the world's biggest single savings market but it is comparatively expensive and dominated by businesses such as Fidelity, Invesco and Vanguard selling funds in high volumes at low fees.
Ron Dewhurst, international head at Legg Mason, says the US "has peaked in terms of its share of global equity markets. Being a predominantly US-focused business, our view is that the rate of growth is going to be greater outside the US than within it".
A third of the company's $685bn assets are currently outside the US. In 10 years, Bank of New York Mellon's assets outside the US have risen from $300m to $400bn - about half of its total funds under management. Jonathan Little, BNY Mellon's acting co-head of asset management, says: "We continue to look at expanding. The prospects outside the US are exciting."
BNY Mellon is more focused on Asia. But other US groups are keen to exploit opportunities thrown up in Europe by converging trends towards a single market amid regulatory pressure for greater disclosure on advice and fees.
Banks are struggling to create cultures attractive to individuals skilled in turning in high returns and are focusing more on distributing funds, says Denis Bastin, principal at consultants Bastin Advisory.
In the wake of the financial crisis, several banks that historically dominated fund distribution in Europe are also being forced to look at disposals in return for state aid.
Many will struggle to find buyers. UniCredit, the Italian bank, said this week it was exploring "all strategic options" for Pioneer, its asset management arm, but added that a disposal was not an option in the current market.
But would-be buyers, including private equity groups such as Advent International, are emerging from the US. Some are bent on consolidation, following in the footsteps of BlackRock that last year bought Barclays Global Investors and became the world's biggest manager with more than $3,000bn in funds.
Consolidators aim to build global brands by buying low-cost businesses where individual managers' skills are less important than systems. But success rests on buying assets cheaply, cutting costs and expanding margins.
Other buyers are less sensitive to price. So-called "multi-boutiques", such as BNY Mellon and Affiliated Managers Group, offer autonomy and revenue shares to managers charging premiums for performance. These multi-boutiques have been steadily picking off rivals in recent years.
AMG, managing more than $230bn, last year bought majority stakes in Artemis, the retail manager with about £10bn ($14.5bn) in funds, and in Pantheon Ventures, the UK-based private-equity fund of funds.
In spite of rising prices, more deals are on the way, say advisers. As Mr Dewhurst notes: "High-quality asset management businesses tend to transact in good markets. You pay a good price for a good quality business."
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