- While the volume of asset management M&A is up this year, top executives from firms including Invesco and PGIM cautioned at a New York conference that the deals don’t always work out.
- "It’s not at all clear that it’s good for the client," said David Hunt, who manages $1.2 trillion as CEO of PGIM.
- Martin Flanagan, who just oversaw a major acquisition as CEO of Invesco, said "the vast majority of people get it wrong" because of culture fit issues and other problems.
- An ideal merger could be between a smaller buyer that’s advanced in tech and a traditional asset manager that needs help to evolve, said Sunni Harford, the head of investments UBS Asset Management – but there aren’t many of those.
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Asset management M&A jumped 55% in the first quarter compared to a year ago, according to a PwC report. But just because more firms are doing deals doesn’t mean they’ll end well, executives at some of the largest asset managers cautioned at a recent industry conference.
The acquisitions come as investors flee actively-managed products in favor of passive and shareholders demand better margins, leading managers to seek out safety in size, new ways to sell their products, and better technology through mergers.
PGIM CEO David Hunt, who oversees $1.2 trillion, said at Tuesday’s Bloomberg Invest conference that leaders of asset managers have a different set of considerations when considering a deal than their peers in other industries do, because firms are responsible first to their investor clients and then to their shareholders.
"That’s different than if we made cars or watches or anything else," he said. "When we do a merger, it’s not at all clear that’s good for the client. Their question is, ‘what happened to my portfolio management team? What’s my return going to be?’ From our point of view, we believe in the people and the talent and the culture that we build, and we don’t want to disrupt it with a lot of big purchases."
Co-panelist Martin Flanagan, meanwhile, has managed a number of mergers as CEO of Invesco since 2005. He most recently acquired OppenheimerFunds from MassMutual in a deal that closed in May, bringing the firm’s assets to $1.2 trillion.
"There’s a way to do [mergers] and there’s a way not to do them. The vast majority of people get it wrong," he said.
Echoing Hunt’s concern about fulfilling fiduciary responsibilities, Flanagan said he thinks about acquisitions with an eye toward enhancing clients’ experiences, and then to cultural fit.
"Are we culturally aligned, yes or no? If you’re not, you will have a problem. It’s just a matter of when will you have a problem. That’s where it goes wrong," he said.
Flanagan said he’ll stop a conversation when an executive at a potential acquisition talks about "how much money they’re going to make" or how big the merged company could be.
"I’ve always had a strong belief that if you take care of your clients and you run a good business, you will become big enough because you’ve done a good job," he said. "I never was a believer in scale. Every time I heard someone talk about size and how big we’re going to be and all they talked about was that what mattered, I knew we were going to have a problem."
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Sunni Harford, the head of investments at $824 billion UBS Asset Management, cautioned that in some mergers, firms "that aren’t positioned for the future" are combining without addressing their root problems.
"The ideal merger is going to be someone who doesn’t have scale and can bring this more traditional asset manager along. Those would be interesting combinations," she said. "I’m not sure there are many of those available."
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