. Last Updated: 07/27/2016

Fund Industry Growth Spawns Mergers

LONDON -- The global fund management industry is growing so rapidly, industry sources say, that the current wave of mergers and acquisitions is expected to gather pace in 1997 as players strive to secure market share.


Among recent link-ups or acquisitions are Invesco and AIM, NatWest and Gartmore, Dresdner and Kleinwort Benson and Hermes' joint venture with Liberty.


"The underlying dynamic is that fund management is a growth industry, and the outlook over the next 10 years is very good," said a U.S. fund manager in London.


"The two main forces behind it are the rapid globalization of markets, and demographics -- the aging of the populations in most developed countries."


Martin Cross, a fund management analyst at UBS, agreed that the spate of fund managers buying each other, and big banks buying fund management groups, would continue through 1997.


"Fund managers buying each other tend to be keenly priced, but the latter are paying top dollar," he said. "They are looking for an alternative source of revenue, and for a relatively small outlay you get a big return from fund management."


Smaller-scale M&A activity is happening nationally all the time, but London, which has more global funds under management than New York, is in the thick of the international fervor.


British houses want to elbow in on the United State; U.S. firms see the British market only just starting to open up, and the whole of Europe after that. Germany has indicated that if it cannot be Europe's financial center, it will build a commanding presence anyway.


Commerzbank is still hungry after devouring Jupiter Tyndall. Bankgeselleschaft lost Gartmore but is still looking. Britain's fiercely independent Mercury Asset Management, having shed SG Warburg, is seen by many as a tempting target.


Industry experts say fund management offers tremendous earnings growth and operational gearing. "It's also low marginal cost. If you are managing 10 billion and you double it, you don't need to double the staff," said a British marketing manager.


In contrast, traditional banking business is seen as capital intensive with bad debt cycles, as well as expensive to set up and develop. Financial-sector companies now want to balance revenues and load up with fees and commissions.


The principal entry barrier often is the length of time it takes to develop a presence and a reputable performance record. "If you set up in Tokyo now and hope to network it will take you an age," another fund manager said. "So you go out and buy a business with a recognized brand name."


UBS's Cross added that "rightly or wrongly, the perception is that investors want to deal with bigger fund managers from the point of view of safety."