The most recent IMA survey found that far from the RDR opening up the market for smaller fund groups, concentration in the larger fund houses is increasing. The top ten firms now manage 54% of all assets under management and the concentration in the top 100 funds has grown.
This was reflected in the views of asset management CEOs in a recent PwC survey, 39% of who placed mergers and alliances among their investment priorities for 2013. In other words, getting bigger is clearly a goal for many asset management leaders. This compared to just 19% who put innovation high on the agenda. PwC concluded: "CEOs know they need to reshape what they offer investors in a risk-averse, low-growth world where investors are asking for fresh ideas."
The popularity of larger fund management groups at a time when investors were supposed to be becoming more brand agnostic has a number of drivers: the first is risk management. Since the credit crisis, increasing risk aversion favours the large groups on the 'no-one got fired for buying IBM' premise. People would rather turn to names that they know than take a risk on smaller groups even if the return potential is higher.
This is partly personal preference, but it also the way regulation is pushing. The drive to standardisation of investment solutions has forced many advisers down the model portfolio route. If they give a certain fund to one client, they must also be able to give it to the next client if they have the same risk parameters. That means that funds need to be large and liquid. It may be part of the reason that investment trusts haven't cleaned up as they might have done in the post-RDR environment.
The sheer scale of regulation in the current environment also favours larger groups. Although those asset managers deemed 'systemically important' may need to hold more capital, the reality is that larger groups can spread higher fixed compliance costs over a broader asset base. This means that they can offer lower TERs and regulation is less of a burden.
Equally, it would be churlish to suggest that larger asset management groups necessarily perform worse than boutiques. Aberdeen has a number of strong franchises and has been responsible enough to soft-close parts of its emerging market range when it felt fund flows threatened to interfere with performance.
Larger asset managers are no longer rapacious asset gatherers, recognising the need to take care of existing clients.
Big may not necessarily be beautiful, but it is safe and that has proved increasingly important for investors who would rather be with a well-known name. Whether that changes in the wake of high profile departures such as Neil Woodford and Richard Buxton remains to be seen, but regulation remains firmly in favour of the larger groups.
analysis is big beautiful
Aberdeen’s acquisition of Swip is the latest sign that big is beautiful in the post-RDR world of asset management.