Henderson Group Plc’s merger with Janus Capital Group Inc. to create a $320 billion asset manager may be the precursor to a wave of consolidation in an investment industry grappling with increased regulation and competition.
“Others will say they wish they’d done it or they’ll contemplate it as well,” London-based Henderson’s Chief Executive Officer Andrew Formica said in a Bloomberg Television interview on Monday. “It’s the most appropriate thing for our clients, our employees and our shareholders.”
Active managers specializing in stock and bond picking have been losing market share to lower-fee passive investment firms in recent years. The combined firm, Janus Henderson Global Investors Plc, will still be a relative minnow compared with BlackRock Inc.’s $4.9 trillion of assets under management and Vanguard Group’s $3.5 trillion.
BlackRock’s Laurence D. Fink said in May that he expects to see consolidation as firms struggle to beat benchmarks and regulation favors index strategies. Analysts from Jefferies Group LLC and Cantor Fitzgerald LP said Henderson’s deal will focus interest on more deals in the industry.
“The field is going to narrow,” Janus CEO Richard Weil said in an interview on Bloomberg TV. “We are not trying to be BlackRock or any of the huge ones, but the additional scale of assets under management allows us the opportunity to capture more earnings for our shareholders and make appropriate investments.”
Both Formica and Weil, whose firm is based in Denver, have sought to diversify their businesses through acquisitions, new fund offerings and overseas expansion. In 2014, Weil hired Bill Gross from Pacific Investment Management Co. to run its Global Unconstrained Bond Fund, which now has more than $1.5 billion in assets.
“There are immediate headwinds for the industry,” said Alex Birkin, head of wealth and asset management at consultants EY in Europe. “The organic growth strategy is difficult and slow particularly in today’s environment, so if you want to take significant step in terms of growth quickly it’s your only option.”
Henderson and Janus were the day’s two biggest gainer’s on the 31-member Bloomberg index of of investment managers. Henderson’s shares surged 17 percent, the most since January 2009, to close at 270.70 pence in London. Janus rose 12 percent to $15.70 in New York, the biggest one-day gain since January 2015; it climbed as much as 19 percent intraday, the most since Gross was hired in September 2014.
Janus investors will receive 4.719 new Henderson shares for each share they hold. Henderson investors will own 57 percent of the new company, with 43 percent going to Janus shareholders. The deal is expected to close in the second quarter of 2017.