As can be expected, when fund selectors evaluate a strategy, we spend the bulk of our time on the investment process and the team running the fund.
Aspects like assessing the shareholder are important, but understandably do not usually absorb as much of our time.
But the recent surge in merger and acquisition activity in financial services has changed this for us at Fundhouse.
We now spend more than double our time on the shareholder than was typically the case only five years ago.
Many of our fund ratings have also changed as a direct result of corporate activity (and all have been downgrades).
The shareholder matters more than ever now.
But first, a brief recap on the corporate activity in our sector.
Threadneedle became Columbia Threadneedle. Henderson is now Janus Henderson. Aberdeen – after purchasing Scottish Widows Investment Partnership – joined up with Standard Life. Jupiter acquired Merian, Liontrust purchased Neptune, Amundi now owns Pioneer, and Premier came together with Miton.
Investec Asset Management is now decoupling from its parent and listing as Ninety One.
M&G listed last year after demerging from Prudential. Franklin acquired Legg Mason, while Invesco purchased Oppenheimer and Guggenheim.
There has been plenty more activity, too.
BlackRock reorganised its active management business. Schroders is now a major player in wealth, as are other fund groups like Aberdeen Standard. Invesco acquired Intelliflo and we have seen that Franklin is buying a large stake in Embark group, that acquired the Zurich platform.
Even on the institutional client side we have seen activity, with Aon acquiring Willis Towers Watson and Mercers buying JLT.
Redington also recently sold a majority stake to Phoenix Equity Partners.
We expect this to continue for many reasons. Prices have fallen dramatically, making some listed companies look very attractive.
For example, when Jupiter announced the acquisition of Merian, its share price was almost at 400. In less than a month, it has more than halved. M&G is worse. It is off approximately 60 per cent over the past few weeks.
And the wealth sector is not immune either. Rathbones and Brewin Dolphin are both off 50 per cent from recent highs.
These moments represent opportunities for take-outs at significant discount by acquirers with bigger, more liquid balance sheets.
They also put fear into the boardroom of the company with the depressed share price and often push them into mergers to stave off acquisition.
There is another factor driving M&A activity.
As we know, active managers have been under increasing pressure from passives and the findings of the Financial Conduct Authority’s asset management market study, as well as from client disintermediation. Yet, before the recent market sell-off, their revenues and margins remained fairly healthy, largely because most asset classes had been in an extended bull market.
Now, as things turn, we will see which companies are resilient and which turn to mergers in an attempt to improve scale.
