Merger and acquisition activity among mutual fund companies will stay high and even increase in the next year, with banks and insurers leading the buying, according to a new study by Cerulli Associates, Boston.
The growth in mutual fund assets in the past four years had eased the pressure to sell among even the poor managers, creating a sellers' market, according to the report. But there are more than 5,000 mutual funds, a number that points to upcoming consolidation, according the report.
The report warns that if the new breed of retail investor reacts to a drop in the financial markets, a massive move of assets from mutual funds back to certificates of deposit could speed up the consolidation process.
Probable candidates for acquisition are companies that have lost market share and private firms where the principals are nearing retirement. Banks and insurers probably will target companies with $15 billion or less in assets, according to the study. A deal of the size of last year's Mellon Bank-Dreyfus Corp. merger is a thing of the past.
If the consolidation speeds up, banks would have the capital to pick up mutual fund assets at bargain prices, according to the report.
Banks have been dependent upon the conversion of trust and CD assets to grow their funds and have not reached asset levels that would bring significant profits. On the other hand, while banks led M&A activity in late 1993 and early 1994, insurance companies have made news in recent months, including the now-defunct merger of Conseco Inc. and Kemper Corp., called off last week.
