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Today New City Initiative is comprised of 43 leading independent asset management firms from the UK and the Continent, managing approximately £500 billion and employing several thousand people.

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M&A: Too Much Activity?

Published by Charles Gubert

In the aftermath of the financial crisis, many asset managers saw M&A with their competitors as a means to survival, principally a necessary evil by which to preserve their businesses amid the tumbling markets and as a counterweight to offset the sheer volume of client redemptions. Since then, M&A activity at asset managers has grown progressively year-on-year. According to data compiled by Sandler O’Neill, a US investment bank, there were 255 recorded deals in 2018, involving $3.71 trillion in AuM (assets under management), up from 210 and $2.88 trillion respectively in 2017.[1] This trend is not decelerating, and it is something that is likely to disproportionately impact boutiques firms.

A combination of challenging performance conditions, surplus regulation, rising internal costs (i.e. growing operational, technology and compliance spend) and the increasing ubiquity of ultra-low cost passive funds have helped create an environment that is ripe for consolidation to thrive. With excessive consolidation, however, comes a number of problems. Firstly, it means that the big shops have accumulated even greater, dominant market share. Analysis by Willis Towers Watson, for example, found the combined assets overseen by the 500 largest fund managers had reached $93.8 trillion, of which, the top 20 firms controlled an unprecedented 43% of assets, accounting for around $40.6 trillion. [2]

In addition to creating concentration risk in just a handful of large asset management providers, uncontrolled consolidation is depriving investors of much-needed choice. The decision also taken by some high-profile distributors to rationalise the number of fund products they sell has not helped matters either. For instance, Deloitte found five out of the eight leading US distributors have culled around 4,900 funds in the last two years alone.[3]  Boutique fund managers have been hit the hardest by this. As these managers are often the ones providing customers with access to niche or specialist markets, anything that threatens their collective existence could have adverse consequences on the investor community.

Even though rampant consolidation may result in fee compression across the industry, it could potentially preclude investors from acquiring diversification, potentially leading to a weakening of returns. Echoing these comments, the US Securities and Exchange Commission (SEC) has publicly confirmed that it is worried about the impact asset management consolidation is having on investor access to small and medium-sized funds. In fact, the SEC has since acknowledged it will review the barriers currently facing boutique managers as part of an industry outreach initiative over the course of 2019. NCI firmly welcomes this SEC stance, and would strongly advise the UK FCA to do something similar.


[1] Pension & Investments (January 7, 2019) Alternatives firms fuel 2018’s increase in M&A

[2] Willis Towers Watson (November 16, 2018) The World’s Largest 500 funds managers – year ended 2017

[3] Deloitte – 2019 Investment Management Outlook: A Mix of Opportunity and Challenge