Consolidation in the fund management industry got another jolt today with news that Trian Fund Management has taken a 9.9% stake in both Invesco and Janus Henderson.

According to Trian’s filings with the Securities and Exchange Commission, Trian has acquired 45.46 million shares in Invesco worth about $493.6 million and about 18 million shares of Janus Henderson, worth about $387.6 million, or about $881 million in total. 

Both stocks surged on the news, with Invesco shares up 6.3% in early afternoon and Janus Henderson shares soaring close to 16% higher.

 Trian did not reveal its plans for the stakes and would not comment beyond its SEC filings, but The Wall Street Journal, which broke the news, reported that Trian believes Invesco has the potential to grow by acquiring Janus Henderson and becoming a stronger competitor to larger asset managers like BlackRock. Trian Fund Management is the investment arm of Trian Partners, founded by Nelson Pelz, Ed Garden and Peter May.

Both target firms have been making their own acquisitions and are known for their actively managed funds. Invesco acquired OppenheimerFunds last spring and the ETF business of  Guggenheim Investments in spring 2018. Janus Henderson itself was formed in May 2017 when the U.K.-based Henderson Group acquired Denver-based Janus Capital Group. 

Invesco released a statement saying that it welcomed “high quality investors” in its firm and continuously evaluates “opportunities to further strengthen” its ability “to meet client needs and hence long-term shareholder value.”

A Janus Henderson spokesperson said that while the firm regularly engages with shareholders and has a policy of not commenting on specific discussions with individual shareholders, “it only heard from Trian on Thursday regarding its investment” and remains “committed to delivering meaningful value for shareholders.”

A merger between Invesco and Janus Henderson could benefit their investors because their investment fees are likely to fall, said Todd Rosenbluth, Senior Director of ETF and mutual fund research at CFRA. He noted, however, that a pruning of mutual fund and ETF choices often follows mergers due to overlap.

A merger between the two fund companies could also provide a catalyst for more deals among asset managers focused on active management as more money moves from mutual funds to ETFs, said Rosenbluth. He said smaller firms face the greatest risk from more consolidation in the industry due to challenges on price and on retaining and attracting investors.

Greggory Warren, a financial services sector strategist at Morningstar, also expects more consolidation in the fund industry  because “the quickest way for firms to combat the fee and margin compression affecting the industry (other than cost-cutting) is to bulk up their AUM.” But he expects that this “scale-driven consolidation” will involve “mid-tier asset managers,” with $250 billion-$750 billion in assets, swallowing up those with $25 billion-$250 billion to better compete in a market dominated by big players. (As of the end of June Invesco had over $1.14 trillion in AUM; Janus Henderson, $337 billion.)

That deal “would only make sense if Invesco were able to acquire Janus Henderson on the cheap” since  Janus Henderson has a much heavier equity footprint, which risks outflows in any sort of merger situation, wrote Warren in a note following the Trian news.

“As we move through the next decade the strong are going to get stronger and the big are going to get bigger… [but]  being both large and strong will prove to be difficult (especially on the active side of the business where it gets harder and harder to outperform the larger a fund gets in size),” wrote Warren.