An industry being reshaped?

By : Matt Rogers

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Blog

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February 20, 2020
Matt Rogers
Director, Head of Investment

Announcements by Jupiter AM and Franklin Templeton about their respective plans for acquisitions of Merian Global Investors and Legg Mason have created more than a few headlines. But these deals may also be indicators of a long-expected trend finally coming to fruition.

Consolidation within the asset management industry has long been predicted; reality has, however, largely failed to match expectations. Granted, the last decade has seen some high-profile deals done, but their impact on the wider industry landscape has been negligible.

Industry expects are perhaps unsurprised about the Jupiter/Merian tie-up, not least given the “deal making” track record of Jupiter’s CEO. The acquisition of Legg Mason by Franklin Templeton was less expected but has the potential to have a more substantive impact, with the new entity becoming the fourth largest investment business in the world.

Response to the latter announcement has been somewhat mixed. Investors and the market are reported to be largely positive; industry commentators and the media less so, if a somewhat colourful analogy by the Financial Times is anything to go by. Certainly, the general consensus of the press is that, despite their size and scale, the acquisition of Legg Mason by Franklin Templeton is a deal being made from a position of weakness rather than strength.

Whatever the motivation, the impact of these deals could be sizeable (certainly in comparison to recent mergers and acquisitions), not least as they may signal the starting point of a trend towards consolidation.

Yes, this is a trend that has been much anticipated over the last decade but has largely failed to come to fruition. This time, however, it all feels slightly different. Without question, investment industry dynamics appear to be creating an environment that, if not favourable for such deals, at a minimum makes them more desirable.

Investment businesses face increasing cost pressures, profit margins are being squeezed, and fund managers are being challenged over the fees they charge, the service they deliver, their ability to outperform (in the case of active managers), and the extent to which they can meet the increasingly complex demands and needs of asset owners.

In such a context, the ability to “pair up” with others and meet these challenges with greater resources and scale will appear attractive to many.

The extent to which such deals will be successful is open to question and it is fair to say that recent history does not have many positive stories. Regardless; if this is to be the start of consolidation within the asset management space, the effects will be profound for customers and providers alike.

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