A huge deal to combine the world’s second and third-largest insurance brokers might typically have dominated the news flow in financial markets. Not so last week.
The merger of Aon and Willis Towers Watson (WTW), announced on March 9, was overshadowed by the massive oil price crash the same day and continuing coronavirus-fuelled market convulsions in the following week.
Yet the transaction – which will see the $80 billion combined group take the Aon name – is certainly significant for both institutional investors and asset managers in Asia and beyond.
The former segment uses investment consulting services offered by the two groups for advice on asset-liability management, asset allocation and manager selection. The latter wants to be available on the Aon or WTW platform for selection by investors.
Aon provides very little in the way of investment consulting services in Asia, however, industry observers point out, so there is a good deal of regional synergy in the transaction. The firm has a portfolio analytics offering in Singapore, but little other than that on this front.
"Aon has made a few attempts to build out its asset management capabilities globally, and so may breathe life into WTW [on that front]," said one senior investment executive at a Hong Kong-based insurer, who also has consulting experience.
"But this won't be the highest priority for the merger, so might take some time to work through," he added.
Meanwhile, Aon already has “a very strong risk and retirement business across the region, which is where I think the key benefits are going to come about for both WTW and Aon,” said Deborah Bannon, Asia-Pacific head of institutional and consultant relationships at BNY Mellon Investment Management. She previously worked at Mercer, a rival of WTW.
Certainly, the chief investment officer of an Asia-based insurer that is advised by WTW said that he didn’t expect any change in the quality of service provided following the merger.
Clients of the big investment consultants are likely to take the deal in their stride, agreed a Hong Kong-based investment executive at an asset owner, who has also worked at an investment consultancy.
“People who use Mercer and Willis are used to the number of consolidations that have taken place already [between investment consultancies],” he told AsianInvestor – despite the major challenges that they pose.
WTW was formed in 2015 from the merger of Willis Group and Towers Watson, which was in turn born out of the joining of Towers Perrin and Watson Wyatt. Aon merged with rival Hewitt Associates a decade ago. Meanwhile, their main rival, Mercer, acquired investment consulting businesses Pavilion and Summit in 2018.
AN EYE ON RATINGS
As it happens, it may be that asset managers, more than asset owners, will need to be alert to the impact of the Aon-WTW merger.
“As time goes on and the integration goes further, as a global asset manager you would have to question what impact the merger could have on your global ratings,” Bannon said. “In a lot of cases you might have a stronger relationship with Aon or with WTW in your home market – and that needs to be taken into account.
As far as BNY Mellon IM goes, which has a raft of fund houses under its umbrella, “the feedback that I’m getting in the market and from our investment firms located in the US and UK is that we’re going to adopt a wait-and-see approach,” Bannon said.
“We’re obviously going to keep engaged with both firms because they are both critically important to us in terms of shared clients and revenue,” she added.
Meanwhile, the Aon-WTW deal is likely to result in cost-efficiencies, with Aon saying that the deal would create $800 million of “synergies”.
The two firms could combine manager search operations, performance reporting and other relation functions, said the Hong Kong-based investment executive with consulting experience, on condition of anonymity.
An Aon spokeswoman did not respond to requests for comment on any future plans for expansion, layoffs, areas of focus or on the size of the investment consulting business in Asia.
CUTS TO COME?
In any case, staff cuts overall are seen as inevitable.
The unnamed Hong Kong-based senior insurance executive said: “There will be big layoffs in Asia, judging by the experience of the Willis-Towers Watson merger, but not in investments or related consultancy.”
A Hong Kong-based recruiter agreed: “It seems that more of the insurance and pension specialists in Hong Kong are concerned, given the overlap with Aon’s business there.
“The investment consulting side is still business as usual, and likely to remain intact given the lack of overlap with Aon there,” he added.
“But they also know that the previous merger between Willis and Towers Watson caused disruption, so they are waiting to see how it all pans out.”