For some time, analysts have been predicting the great unbundling of a big part of Europe’s asset management industry. Banks and perhaps even a few insurers, facing the need to raise capital to meet tougher regulatory requirements, would scramble to unload their fund management businesses. The logic seemed compelling, but the wave of M&A activity failed to materialize.
Lately, however, there are signs of movement. Aberdeen Asset Management announced last month that it was discussing a possible acquisition of Scottish Widows Investment Partnership, the £146 billion ($234 billion) fund management subsidiary of Lloyds Bank. Analysts estimate the business could fetch £500 million.
The news follows the recent agreement by Banco Santander to sell a 50 percent stake in its asset management subsidiary to the U.S. private equity firms Warburg Pincus and General Atlantic. The Spanish bank booked a tidy €700 million ($960 million) gain on the deal. And in July, Rabobank Group of the Netherlands sold a 90 percent stake in its fund management arm, Robeco Group, to Orix Group, a Japanese financial services outfit, for €1.9 billion.
Expect more such deals, says Andy Maguire, managing partner for the U.K. at Boston Consulting Group. Not only do banks need capital, but asset managers themselves need to bulk up. The low-interest-rate environment across the developed world is forcing investors to explore ever-more-exotic solutions in their search for yield, creating a sort of arms race among asset managers.
“It’s not obvious that the things that are selling are the things that you can do without size or scale,” says Maguire. “You need plumbing and infrastructure that’s beyond the ken of your traditional active asset manager.”
Scale is evident in the Euro 100, Institutional Investor’s annual ranking of the region’s largest fund managers by assets. Allianz, the big German insurer, tops the list with €1.86 trillion in assets at the end of June, up 6.6 percent from a year earlier. It is followed by rival French insurer AXA, Switzerland’s UBS, French fund manager Amundi and the New York–based fund giant BlackRock.
Lloyds Bank has stepped up the pace of divestment lately — including splitting off its TSB banking subsidiary in prelude to an IPO — in an effort to get the U.K. government off its share register. In September, Her Majesty’s Treasury sold a 6 percent stake in the bank, reducing its holding to 32.7 percent.
For Aberdeen, a purchase would bolster its fixed-income business. That’s a key priority of CEO Martin Gilbert, who has doubled the firm’s assets with some opportunistic deals over the past five years. He’s also keen to expand in the American market. In May, Aberdeen ticked both boxes by paying $180 million for Artio Global Investors, a $10.6 billion fixed-income specialist based in New York.
“If you want to be a big player in the asset management business, you’ve got to have a strong U.S. presence,” says Gilbert.
Not all European banks are in retreat. Deutsche Bank, which made a fresh commitment to its asset management business after failing to conclude a sale to Guggenheim Partners last year, stands at No. 6 in the Euro 100 with €675 billion in assets.
Pioneer Investments, which moves up one place to 36th, is enjoying a similar reprieve after its Italian bank parent, UniCredit, stopped shopping the firm around two years ago. Pioneer had net inflows of €2.8 billion in the second quarter.
“Probably the worst of the crisis in the distribution of asset management products is behind us,” says CIO Giordano Lombardo.
It helps that European politicians and central bankers have averted the risk of a euro breakup, for now, and signs of recovery are sprouting. But fund managers aren’t breaking out the champagne just yet.
Marion Stommel-Hatzidimoulas, head of credit at Legal & General Investment Management (No. 8), says Europe can expect only slightly positive growth overall next year, with significant variations among countries. That argues for relative-value plays between countries and credits rather than bullish risk-on positioning, she contends.
A sluggish growth outlook and the prospect of negative bond returns as interest rates rise from record lows will make it hard for managers to deliver strong performance in coming years, says Pioneer’s Lombardo: “We are going to see lower returns in the main asset classes.” • •
