It just keeps on going…….
I’ve written before about investment managers getting together through mergers or takeovers. It seems to have been a defining feature of the industry in recent years.
But we’ve reached a tipping point. Since the start of the century, the asset management industry has been attracting about 150 new firms every year on a net basis. But in the last 3 years this has slumped to practically zero, as the number of firms ceasing or being acquired exceeds the number of newly created ones.
The industry is no longer producing net new managers.
And this week we saw even more consolidation activity.
NatWest Group has agreed to buy Evelyn Partners, for £2.7 billion. This will make for a combined company with total assets of £127 billion.
And US giant Nuveen is spending nearly £10 billion to buy UK firm Schroders. The new firm will have $2.8 trillion in assets under management.
This all follows on what had been a very big year for deals in the asset management industry. In the US for example in 2025, asset managers spent a record $38 billion on M&A – more than double the previous year. The number of deals was the highest since records began in 1980.
And it doesn’t look as though it’s going to end anytime soon. Industry watchers predict that in the next three years we will see 20% less asset managers globally.
This is because the drivers of this consolidation are still very much intact:
*Rising costs
*Margin pressure
*Client demand for broader investment offerings including asset classes like alternatives and private assets.
Regulatory, compliance and advanced technology costs remain a key issue for asset managers. indeed overall cost reductions were cited in the two deals announced this week.
NatWest expects its deal to generate about £100m in annual cost savings, and Schroders, while it will see limited synergies, was already on a cost reduction path, with a $193 million cost cutting programme. Cost cutting is increasingly seen as necessary but not sufficient. And a deal may not lead to lower costs. 60% of all deals in the asset management industry do not lead to lower cost income ratios.
Traditional cost-cutting can buy time but not advantage.
And as costs rise, revenues remain under pressure from new cheaper fund structures and growing indexation. As a measure of what managers can charge, surveys show that for global multi-asset funds managed on an active basis, the total expense ration has fallen from 1.14% 5 years ago to just over 1% today and is forecast to fall further by 2030. Evidence shows that for many institutional investors costs are an increasingly important factor in manager selection.
And it’s mid-sized managers who bear the brunt of the pressure.
The drivers of the consolidation wave remain powerful.
Getting access to new distribution channels or the ability to offer a broader choice of investment offerings (private assets as an example) has been to the fore in a lot of the recent moves in the industry.
Firms that can combine a wide range investment expertise in many asset classes and distribution strength, but above all who have scale, will be well positioned in what can potentially be a very attractive industry.
But an industry with a smaller number of players.
Tradewinds 