Further mergers and acquisitions (M&A) among asset management companies in Asia could focus on smaller asset management units owned by financial services groups such as insurers, banks and securities businesses, say consultants and salespeople.
In addition they believe large asset managers could inreasingly look to snap up boutiques to fill product spaces in which they are weak.
The potential for financial groups to divest themselves of their asset management units is especially likely if the parent company has been affected by more stringent capital adequacy rules.
“Solvency II and risk based capital regulations are becoming more onerous for insurers,” noted Keith Pogson, senior partner of Asia Pacific financial services at EY.
Some insurers could spin off or de-merge their asset management businesses because they’re non-core or they don’t want to have the units overseen by insurance regulatory regimes, added Martin Tam, co-head of Baker Mckenzie’s Asia Pacific insurance focus group.
“These are quite mature businesses with relatively stable cash flows, and valuations that are high and perhaps even at their peak. There is an argument to be made that for these models, now is the right time to sell,” said Trevor Persaud, the former head of insurance at Standard Chartered Bank in Singapore.
Market speculation has been swirling for a while around insurers with asset management arms. One example cited was France-based Axa, which has a $861 billion asset management arm. Axa IM did not comment.
Interestingly, insurers are doing the opposite in some markets, and trying to establish their own asset management companies.
“In Hong Kong, one of the major asset management businesses is in the mandatory provident fund (MPF) space … and it is continuously growing. This has generated a lot of interest, and we see that some insurers are setting up their AM companies to enter into this business,” Baker McKenzie’s Tam said.
Globally, asset manager valuations in 2017 remained in line with recent years at 10 times median expected Ebitda (earnings before interest, tax, depreciation and amortisation), according to a report on the industry by Sandler O’Neill and Partners.
Listed financial conglomerates are also noteworthy M&A candidates, because they can raise capital quite easily by selling a stake in the firm.
Hong Kong listed asset manager Value Partners group is a good example. It ended talks in January this year to sell a stake in the company to an undisclosed buyer, widely reported to be Chinese conglomerate HNA Group.
One funds industry veteran said it could continue to hunt for other suitors. But an executive familiar with Value Partners’ plans said the company is hunting for a strategic partner for product development and distribution, but it doesn’t appear to be looking for a buyer.
Chinese asset managers are also tipped to turn acquirers in coming years (see box on page 65), while Australian fund houses are viewed as potential takeover targets (see opposite box).
In addition, larger fund houses are selectively embarking on M&A. While big asset managers also face performance pressure among their vanilla actively-managed funds, they see it as an opportunity to expand into product or geographic areas in which they’re not as strong.
Amundi’s acquisition of Pioneer Investments in late 2016 converted it into the world’s eighth largest asset manager and helped it gain more multi-asset product capability outside France. UBS AM’s Koerner said in May that the $793 billion global asset manager was open to the idea of partnerships, including acquisitions. And in June, BlackRock was reported to be interested in buying a minority stake in Eurizon, Italy’s second largest fund house. BlackRock declined to comment.
Industry executives feel more are likely, although none were willing to speculate on specific targets.
AIMING AT ALPHA
Among smaller boutiques, the potential for M&A is mixed. Fund house boutiques with a track record of delivering alpha consistently—especially in non-traditional strategies—are likely to thrive.
“If a boutique can consistently deliver alpha, it’s proof their investment capabilities are solid and not affected by varying market conditions. Importantly, small boutiques focus only on product manufacturing, while leaving distribution to partners such as banks,” said the Asia CEO of a European fund house, who declined to be named.
That success also makes them tempting targets for bigger managers. Some may accept, if the offers are appealing enough, and they are given enough autonomy.
“A lot of specialists want the autonomy in setting the strategic direction and building their own businesses, while benefitting from the wider investor reach of a larger asset manager,” said the Asia wealth management head.
Experts point to BNY Mellon as a successful example of this multi-boutique model. It has 12 specialist boutiques operating under its business model, including Alcentra, Insight Investment, Newton Investment Management, Walter Scott and Standish.
This article was adapted from a feature on fund manager consolidation, originally featured in AsianInvestor June/July 2018. To read the first part of the article, please click here.