buinessmen with puzzle pieces

In 2019, merger and acquisition volume and value in the asset and wealth management sector set records, according to PwC’s fourth-quarter report released Thursday, and analysts said 2020 would be “another blockbuster year” for consolidation and more deals.

Fifty deals were reported in the fourth quarter, the report said, raising volume for the year to a record 212 transactions. Deal value hit a new high as well, with a total $41.6 billion transaction value disclosed, more than twice the 2018 level.

Charles Schwab’s purchase of TD Ameritrade in November for $26 billion in an all-stock transaction turbocharged last year’s surge, the report said.

According to the report, persistent fee pressure, declining assets under management at many firms and convergence of asset and wealth management and insurance will challenge second- and third-tier firms, likely resulting in further consolidation and more deals.

In the wealth management subsector, transaction volume rose by 18% quarter-over-quarter, pushing the year’s total to a record volume 105 deals and portending robust volume in 2020. Total disclosed deal value for the year fell by 63% — the report noted that many of these deals involved acquisition of small family offices whose value is often not publicized.

PwC said the asset and wealth management industry’s business model and pricing structures will likely trigger more consolidation in coming quarters. It said the mutual fund industry is likely to face transformation next, and estimated that 20% of mutual fund asset managers would be acquired or eliminated by 2025.

It noted that assets were becoming increasingly concentrated among a handful of top players. To survive, it said, active managers hit with significant investor withdrawals will need to evolve or consolidate. Meanwhile, they can expect fee compression to intensify as equity markets cool down.

The report said convergence of insurers and asset managers has been accelerating, in both directions: insurers to diversify earnings and asset managers to boost their assets under management.

Alternative managers will continue to feel performance pressures, according to the report. Faced with persistently weak returns — hedge funds in 2019 had a difficult year, compared with the hefty returns of public equity markets — investors could reduce their asset allocation to this subsector.

In contrast, private equity investing will likely remain popular and prominently active in dealmaking. The report noted that several new asset managers entered the minority staking space in 2019, focused on investing and providing liquidity to private equity managers.

Dyal Capital Partners, a unit of Neuberger Berman, recently announced that it had raised $9 billion for a new fund focused on such investments.

PwC based its findings on data provided by Thomson Reuters and S&P Global Market Intelligence as of Dec. 31, supplemented by additional independent research.

— Related on ThinkAdvisor: