Asset Mgmt
What a difference a year makes—and doesn’t.
During the volatile market action in March 2020, decisive central bank intervention restored market confidence in days—and capital markets have functioned without major disruption for the past year.
As McKinsey notes in its recent report, “Across the Great Divide: North American asset management in a year of many shocks but few surprises”, with asset management industry revenues tracking the financial economy rather the real economy, most asset managers had a “pause” year with the publicly trading managers falling solidly in the middle of returns of all the market sectors.
Yet we are now seeing several trends re-accelerate.
Notably, the opportunity for more mergers and acquisitions in the North American asset management industry has increased as the “Great Divide” gap has further widened between the best firms and the rest. See chart below. And “publicly listed industry leaders have a currency (their high valuations) to pursue high-quality acquisitions” observes McKinsey.
McKinsey
McKinsey has further divided asset management companies into four groups. Significantly, one group, consistent high performers, excelled through two contrasting market and operating environments through the first two quarters of 2020, with $183 billion in net inflows. And notably, 80 percent of the flows to this group went to just 10 firms.
Only half of the industry’s current asset management companies will still exist by 2030 following a massive escalation in mergers and acquisitions activity, according to Piper Sandler in a recent article in the Financial Times.
In fact, Dimon of JP Morgan Chase said on his third-quarter results call that JP Morgan Chase would be interested in acquiring an asset manager and that he expects more consolidation in the industry. And in October, Morgan Stanley announced the acquisition of Eaton Vance, a manager with more than $500 billion AUM.
One major focus of consolidation is acquiring a more specialized counterpart to reposition into high growth areas such as private markets and exchange-traded funds. Another focus is expanding into adjacent industries such as wealth management to diversify revenue sources.
McKinsey observes “Asset managers should ask “If not now, then when?” regarding bold M&A moves, significant talent liftouts, operating model re-engineering, radical reallocation of resources towards growth priorities, or structural shifts in the cost base to create a currency for growth.
