“Consolidation is likely to see underperforming funds and closet trackers increasingly pushed out of the industry, which can only create opportunities for firms where active stock-picking remains to the fore, and a better pool for us to pick from,”Husselbee adds.
“For me, asset managers that oversee £2bn to £40bn will be in the sweet spot as, while these specialists should be able to maintain more nimble funds, larger companies with multiple strategies always run the risk of a more diluted focus.”
Tony Yousefian, consultant with Albemarle Street Partners, which among other things helps advisers hone their investment propositions, says Mifid II is one of the big drivers.
“It is a reflection of the change in the environment – a change that has been forced as a result of margins coming under pressure and regulators making things to go that way,” he says.
“The environment is no longer conducive to small to medium sized investment management houses or boutique investment houses. Mifid II is going to have a tremendous impact. It is important to have economies of scale.”
Richard Philbin, chief investment officer at Wellian Investment Solutions, says that mergers can help asset managers square the circle of increased regulation, while coping with the increasing focus on costs.
He says: “Simply put, mergers are an obvious path that boards have to follow. In a world where regulation becomes an increasing part of our day-to-day operations, a way to improve returns is by reducing cost. Compliance is not a profit-centre and is a big fixed cost, so to diversify this through larger assets under management (AUM) helps keep things under control.
“As costs come increasingly under pressure, having a larger AUM base helps as well – one fund could be selling stock A and another buying it, which allows for cross trade without affecting the market directly and at a lower trading price. Also, larger AUM can help with pricing of IPOs, coupons and covenants on debt.”
