Why more M&As are likely in Asia’s fund industry

A combination of factors are squeezing the margins of asset managers, and leading more to consider mergers to cut costs and attract more investors.
Why more M&As are likely in Asia’s fund industry

Passive funds. Margin compression. Online distribution. Artificial intelligence. Alternative assets. Regulatory costs.

The global asset management industry is facing pressure from several pain points. For several years, fund houses in the active space have seen key funds fail to outperform, or witnessed asset outflows to cheaper alternatives—often to passive rivals. 

It’s likely to keep happening. By 2025, active management is expected to account for 60% of global assets under management (AUM), down from 71% in 2016, predicted a PwC report titled Asset and Wealth Management Revolution: Embracing Exponential Change in October 2017.

Meanwhile, asset owners are seeking out alternative strategies too. Industry executives say alternative asset specialists are becoming highly prized, and are likely to remain so for the next few years. 

“The demand for alternative asset specialists is part of a broader hollowing out of the mid-tier segment of the fund management industry. At one end, you have the low-cost ETF kind of products that are growing in demand,  at the other end, investors are willing to pay for niche investment skills,” said Keith Pogson, assurance leader in the global banking and capital markets team at consultancy EY. 

“The ones in the middle picking stocks in traditional equity classes with historically high fee bases, for instance, are the ones that will struggle to survive.”

The pressure of these dual trends have already led some international fund managers to embark on consolidation. Mergers can provide embattled fund houses with economies of scale and help them bolt on ready-made products to their organisations.

There were 208 announced mergers and acquisitions (M&A) transactions among asset managers in 2017, the highest level since the global financial crisis, according to the ‘2017 Asset Management Transaction Review and 2018 Forecast’ report by US financial firm Sandler O’Neill and Partners.

More such deals are likely. Below, AsianInvestor identifies some of the key trends we anticipate shaping M&A in Asia, and across the world, in the coming few years.  


Further M&A looks most likely among mid-sized asset managers, said Ulrich Koerner, global president of UBS Asset Management. 

“The asset managers most vulnerable to these changes will be those with assets between $50 billion and $400 billion—the mid-sized managers who will find it harder to survive,” he told AsianInvestor.

These managers cannot compete with the very biggest players such as BlackRock and Vanguard, yet they lack enough specialised investment capabilities to find their own niche in the market. 

About 150 global asset managers possessed between $50 billion and $500 billion in AUM at the end of 2016, according to Willis Towers Watsons’ list of the top 500 global asset managers. 

Fund houses that have suffered heavy investor outflows from funds or are saddled with poorly performing funds are among the best incentivised to consider strategic partnerships or even exits from certain markets. 

One example is US fund house Franklin Templeton. Data from funds tracker Morningstar Direct reveals that some of its key funds registered big asset outflows globally over the past three years. The Templeton Bond Fund, for example, had a $14.3 billion net outflow of assets in the three years to the end of May, the worst performer in the list. The Templeton Global Return Fund and the Templeton Asian Growth Fund experienced respective outflows of $10 billion and $6 billion, over the same period. Franklin Templeton Investments is believed to be scouting around for a suitable M&A candidate, according to two industry experts who declined to speak on the record. The company declined to comment.


The rise of passive investments has also hurt mid-sized players, which often lack investment businesses in this area. 

“To be a strong ETF player, you need at least $1 billion in AUM,” said a former Asia head of wealth management at a consultancy, who declined to be named. “It’s also quite hard to be at the vanilla end of the market as margins are razor-thin.”

Several mergers have taken place among middle-sized managers. Aberdeen Asset Management and Standard Life, for example, had close to $400 billion in AUM each completing their merger in mid-2017. Janus Capital and Henderson Global Investors, meanwhile, had around $200 billion in AUM apiece before allying in 2016.

More recently, $324 billion France-headquartered Ostrum Asset Management, acquired a 51.9% stake in $6.8 billion value manager Investors Mutual based in Australia, suggested it is open to more acquisitions in the region. Expect to see more in the months and years to come. 

This is the first part of a feature looking at the potential for more consolidation in the fund management industry in Asia, adapted from an article in AsianInvestor June/July 2018. Look out for part two in the coming days. 

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