Traditional money managers' buying spree among alternative investment firms has reached a pace not seen since before the global financial crisis.
Driven by a shrinking base of institutional investors, those investors' big swings to passive management and fee pressure on traditional strategies, money managers' keen appetite for the higher fees private market strategies can add to the bottom line has only intensified, sources said.
Alternative investment management deal activity in 2017 hit its highest level since 2008, with 67 transactions, a 40% increase from the 48 purchases in 2016, said investment bank Sandler O'Neill & Partners LP in its recently released 2017 asset manager transaction review.
Real estate, private equity, private credit, direct lending, infrastructure and other private market managers running specialized or differentiated strategies such as multiasset credit continue to receive maximum attention from large asset management buyers even as the deal books for traditional active management sellers gather dust, the Sandler O'Neill report showed.
"Buyers will continue to look to acquire in-demand, specialist capabilities less likely to be cannibalized by passive strategies," the report's authors said, noting "without specialized investment capabilities, strong performance track records and a clear growth trajectory, sellers will have difficulty finding buyers at attractive valuations."