Speed is of the essence if you want to avoid being caught in asset and wealth management’s ‘squeezed middle’

May 03, 2017

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With a number of high profile planned mergers announced over the past few months, large scale deal activity within asset and wealth management is gathering pace.   

Why now? The transaction rationale has been building for some time in a market that favours niche specialisation on the one side and genuine scale on the other. While generally still a profitable place to be, active managers in the middle are finding it particularly hard to maintain margins in the face of passive fund growth and direct fee pressure from clients. Without clear differentiation in performance, distribution or investment focus, the only way to sustain margins over the long-term is 1/ scale – $250 billion plus assets under management (AUM) is emerging as table stakes – or 2/ extending the footprint East or West to provide a global offering and be closer to new fund flows. Many will pursue a combination of the two.

Tipping point

As a result of these market pressures, businesses in the $50-$250 billion AUM mid-market are being left to form an increasingly squeezed middle. Today’s reasonable returns and the slow pace at which pension funds tend to switch investment managers may lead to some lingering complacency. But institutional sentiment has now reached a tipping point as competition increases pressure on fees and many pension funds opt for the ease of being able to invest worldwide without the need for multiple managers.

Risk of being left behind

Many of the businesses in this challenging space are putting out feelers to each other as they look to build up scale and extend their international reach. That’s why it’s vital to look at your strategic strengths, opportunities for differentiation and what businesses offer the most favourable tie-ups. The deal momentum is an opportunity to transform your organisation and bring it into the big league. Wait too long, and you could find that the most suitable partners are gone or your bargaining position is weakened as the flow of business dries up – a merger of equals it won’t be.

Stephen Jones |  Partner, Transaction Services
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