Fitch: EU Asset Managers to Rationalise but M&A Spree Unlikely

Robeco Global Stars Equities Fund NV

13/02/2014 10:05

(The following statement was released by the rating agency)

LONDON, February 13 (Fitch) European asset managers are set to rationalise 
further, but a widespread M&A spree is unlikely, Fitch Ratings says. Most 
managers may opt for less intrusive strategies, such as a reduction in the 
number of funds and cost-cutting, to tackle margin pressure in a fragmented and 
competitive market rather than face M&A challenges.

We have previously highlighted that the elimination of sub-scale activities and 
the reduction in the number of funds will remain an important component of 
industry rationalisation. Around 250 funds are currently eliminated every 
quarter in the European market. Further rationalisation potential remains 
because the market is fragmented. For example, 65% of cross-border fund ranges 
do not have a single flagship fund with assets of more than EUR1bn.

We do not expect widespread M&A because there are not many large candidates left 
and deals can bring considerable risks. There could be stark cultural 
differences among managers and they may also face investor outflows. Other 
challenges include a negative impact on an asset managers' credit profile if an 
acquisition involves debt funding, regulatory hurdles in the approval phase and 
over-paying in a competitive market, particularly if a bidding war is triggered. 
 

In addition, the European landscape is markedly different from the US, with a 
much larger captive business component - notably insurance assets - that is less 
prone to change hands. This partly explain differences in the pace and scope of 
consolidation on both sides of the Atlantic. 

Nevertheless, we expect some further selective M&A activity among European asset 
managers, particularly where institutional investors increasingly demand scale, 
such as alternative investment, private equity and real estate. Aberdeen Asset 
Management's (A-/Stable) acquisition of Scottish Widows Investment Partnership 
and Schroders' (A+/Stable) acquisition of Cazenove Capital, both in the UK, are 
examples of recent selective acquisitions. Aberdeen's deal will add scale to its 
UK equities and fixed-income business, while Schroders expanded its private 
banking operations. We expect the acquisition of smaller specialists to remain 
popular ways for asset managers to add competences, products, clients or 
distribution channels.

 

European asset managers have also generated interest from overseas parties, such 
as Bank of Montreal's recent offer for F&C Asset Management, and the sale of 
Robeco to Japan's Orix and of Dexia Asset Management to New York Life in 2013. 
These transactions enhanced growth platforms and increased geographical 
diversification of previously North American- or Asian-focused funds.

Our "European Asset Management: Tapping Growth Through Rationalisation, 
Innovation, Diversification," report at www.fitchratings.com has further details 
on the sector.

Contact: 

Erwin van Lumich

Managing Director

Financial Institutions 

+34 93 323 8403

Fitch Ratings Espana S.A.U.

Paseo de Gracia, 85, 7th Floor

08008 Barcelona

Aymeric Poizot

Managing Director

Fund & Asset Manager Rating Group

+33 1 44 29 92 76

Cynthia Chan 

Senior Director

Fitch Wire

+44 20 3530 1655

Media Relations: Hannah Huntly, London, Tel: +44 20 3530 1153, Email: 
hannah.huntly@fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market 
commentary page. The original article can be accessed at www.fitchratings.com. 
All opinions expressed are those of Fitch Ratings.

Applicable Criteria and Related Research: 

European Asset Management - Amendment

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=719317

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