Consolidation, the trend to passive, bank divestitures and increased interest in U.S. managers from Asia-based buyers drove M&A activity in the institutional asset management industry in 2017, findings from New York-based investment bank Cambridge International Partners LLC show.
And although the largest deal of the year — the merger between Standard Life Investments Ltd. and Aberdeen Asset Management PLC — led to a lot of soul-searching and hand-wringing over fears of vulnerability and forced consolidation within the industry, it ultimately didn't lead to an increased number of similar premium-free deals.
Data from Cambridge International show that 171 deals took place in 2017 globally, compared to 178 in 2016. Meanwhile, deal volume in 2017 reached $26.3 billion, vs. $25.6 billion the year before.
Transactional activity in 2017 continued to be driven by consolidation in asset management. Seven of the top 10 transactions reflected a consolidation theme, up from the five out of 10 in 2016.
"Consolidation in the asset management space was the principle driver of activity," said John Temple, president of Cambridge International, New York.
Other industry sources agreed that, as investors look to lower costs by reducing the number of firms with which they do business, consolidation will continue — and will continue to drive M&A activity.
There's been a considerable amount of M&A within the industry as several large managers have sought synergies to facilitate margin expansion, said Joshua M. Emanuel, chief investment officer, Wilshire Funds Management, Santa Monica, Calif.
"You're going to see more of it," Mr. Emanuel added.
Investors are moving toward larger managers that have more capabilities, which will put more pressure on smaller and midsize managers, said George Gatch, managing director, CEO of asset management clients at J.P. Morgan Asset Management, New York.
And because the smaller managers don't have the distribution or investment capabilities to provide to big institutions, they'll likely use M&A to gain scale.
"There's going to be a move away from the have-nots to the haves'' in terms of capabilities and resources, said Mr. Gatch.