M&A activity has been talked about a great deal as companies continue to build up strong balance sheets but it is obvious that they are unwilling to spend and are instead hoarding as much money as they can squirrel away ‘just in case’ they need it.
Self-improvement
The bigger firms will continue to talk about investing in their businesses but it is only the true giants who will be able to make a material difference by doing so. In the Barclays group 2011 results announced this morning, Barclays Wealth realised a growth in profit of 27% “partly offset by increased investment in the growth of the business”; a few bullet points later it also talked about an 11% increase in its operating expenses thanks to an “Increase in investment spend and related restructuring costs to support the strategic investment programme”.
Rather than spending this cash, on anything let alone M&A, it seems there is a lot of strategising being done instead, with Aviva being one firm that has at least tried to explain it shift to the big-ticket institutional world.
Ignis is another that has gradually changed its operating model over the past few years, separating itself from its joint ventures (Hexam, Argonaut and Maia Capital have been let loose, with only Cartesian remaining). Instead it is hunkering down to service its institutional clients and shareholders before reinvigorating its retail business at some point in the future.
On the life company side, Clerical Medical International is to close thanks to the decision by its parent company, Scottish Widows, to withdraw from the offshore bond market.
Life style choice
Friends Life has launched its own investment arm to, initially at least, run its life company’s fixed income money and in a few years’ time they will surely look to set up its own mutual funds and make them available to intermediaries.
There are plenty of other asset management and life company firms doing their own strategic reviews behind closed doors as profitable business becomes harder to come by. The outcome will likely be the closure of other distribution channels as costs are pushed lower while margins on retail business remain paper thin.
The main focus of RDR has – quite rightly – been on how intermediaries will react to change, with fund management firms reacting by bringing out their RDR-friendly share classes. This focus may now be changing, as fund managers are obviously looking outside the retail businesses as it will only become harder to make money there.
The likes of Schroders, Fidelity, and maybe JP Morgan AM are too big to change that drastically so keep an eye on the top/mid-tier firms for the next bout of announcements that start with “as a result of strategic review” and end with “there will be a renewed focus on our core institutional offering…including our multi-manager business”.
