State Street Study Predicts More M&A Deals Among European Asset Managers

(September 23, 2010) — A report released by State Street Global Advisors (SSgA) reveals that the trend of consolidation is expected to continue, as asset managers embrace new ways to re-engineer their business amid changing investor needs. “The industry is likely to look very different within five years,” the report states.

In its vision report — The Changing Shape of the European Investment Management Industry — the firm said that the hunt for scale and lower costs will be achievable through M&A activity, described within the report as “an industry-changing trend.” For example, Aberdeen Asset Management’s acquisition of RBS Asset Management’s fund-of-funds business, which closed in January, provided Aberdeen an established hedge fund-of-funds offering. Meanwhile, multiboutique BNY Mellon Asset Management’s 2009 acquisition of Insight Investment gave it a leader in LDI. According to SSgA, all managers will need to cut costs, and reducing the number of strategies to those that are core to a manager will be imperative.

SSgA concluded that institutional investors have taken a barbell approach to allocating assets with a majority of assets going toward passive and the remainder going to high-alpha strategies like alternatives. Furthermore, the firm said divestitures from banks looking to focus on their core operations would drive interest and increased valuations for boutique asset management firms.

“At a time when both banks and boutique asset managers are willing sellers, the recent stream of deals is likely to continue,” the report said. “Over the next five years, mergers will lead to the creation of larger firms with logical structures – some with low-cost, scalable business models and others focused on building stables boutique managers.”