The proposed merger of Janus
Group and Henderson Global Investors could be the “opening bell for more
consolidation” among large active asset management groups, according to Moody’s.
“It remains to be seen whether the combined entity will be able to counter asset flow and fee pressure as a result of increasing investor preference for passively managed funds.”The merger, announced last week, has been widely welcomed by
market analysts. The new entity, to be named Janus Henderson Global Investors,
will be responsible for more than $320 billion in assets.
However, with increased competitive pressures on investment
costs and a growing investor preference for passive strategies, Moody’s argued in a research note
that the deal was “largely defensive in nature.”
“Strategically, the integration of two active asset
managers, while positive, does little to address investor flight from active
funds, and the corresponding reduction in asset management fees,” Moody’s said.
“This merger highlights building stresses in the industry, even within the
investment-grade space, and is likely the opening bell for more consolidation
among the larger asset management firms.”
Fellow ratings agency Fitch Ratings expressed a similar
concern regarding the groups’ overwhelming bias to active strategies. Janus in
particular has suffered from the switch to passive investment, recording
average outflows of 6.2% of assets over the last four years, Fitch said in a
research note. However, Henderson—which has stuck with active strategies—experienced inflows of 4.1% a year over the
“It remains to be seen whether the combined entity will be
able to counter asset flow and fee pressure experienced by active investment
managers as a result of increasing investor preference for passively managed
funds,” Fitch said.
These concerns came despite the deal’s several positive
elements, according to Fitch, which included increased scale, diversity across
geographies and products, cost savings, and less debt. The support of major
shareholder Dai-ichi, a Japanese insurance company, was also praised.
Janus Group took its first step into the exchange-traded
fund (ETF) sector in 2014 with the purchase of ETF provider VelocityShares. As
of June 30, 2016, Janus’ ETP managed roughly $300 million—less than 0.1% of the total
assets under management of the combined Janus Henderson group.
“Fitch also notes the general integration and execution
risks associated with mergers, particularly ones which cross geographic
regions, entail co-CEO roles, and involve broader reorganization of executive
management,” the ratings agency added.
“In our view, this transaction could create a
combined company with stronger business and financial risk profiles compared
with Janus’ as a standalone entity,” said Olga Roman, credit analyst at Standard
& Poor’s Global Ratings.
According to a report on financial services mergers and acquisition
published by Deloitte earlier this year, a
certain level of scale is “critical to deliver profitability” for asset
“Securing new inflows to
drive AUM growth requires strong investment performance and capability in
popular asset classes or investment strategies,” Deloitte Director Baber Din
wrote. “This will increasingly be reflected in focused acquisitions that
inorganically build product capability or extend geographic reach, rather than
simply adding scale to realize cost synergies.”
Group to Merge With Henderson & LSE
and Deutsche Börse Confirm Merger