Big Fund Managers Eat Midsize Managers’ Market Share

The study backs up a July report by consultancy Bain & Co. which found that firms managing about half of the world’s assets face a “valley of death.” There is a bifurcation coming between small, nimble firms offering specialist investment services and mega-sized all-service companies exploiting economies of scale to counter the headwinds of ever-lower fees and increased regulatory costs. Those in between are expected to merge or die.

Consolidation, though, has been limited, and the firms that have done deals haven’t exactly been rewarded for their efforts. Janus Capital Group Inc.’s merger with Henderson Group PLC, the combination of Standard Life PLC and Aberdeen Asset Management PLC, and Amundi SA’s purchase of Pioneer Investments last year haven’t immunized those firms from widespread investor concern about the industry’s outlook.

UBS Group AG wants to expand its asset management business, either through acquisitions or joint ventures, Bloomberg News reported on Tuesday citing people with knowledge of the matter. Invesco Ltd. agreed earlier this month to buy OppenheimerFunds from Massachusetts Mutual Life Insurance Co. for about $5.7 billion. That prompted Ken Jacobs, the chief executive officer of Lazard Ltd., the sole adviser on the MassMutual transaction, to say he would consider selling his firm’s $240 billion asset-management division — for the right price.

And therein lies the paradox. The stock prices of fund managers have been beaten up this year, making them cheap. But that also means the potential acquisition currency is much diminished. At the same time, no one wants to be a distressed seller. It’s a lose-lose situation.

So middle-sized firms will continue to lose market share to their bigger brethren. Which re-raises the question I posed at the start of the month: Why would you invest in an investment firm?

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Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”