Merger and acquisition activity within the money management industry grew in 2018 from the year before.
The boost was driven by an increased interest in alternative investment managers, partially offset by tepid interest in acquiring traditional long-only managers and a declining desire to acquire mutual fund businesses.
In addition to buyer appetite for alternatives managers increasing, consolidation also drove M&A activity among asset managers, as exemplified by the largest deal of the year. In October, Invesco Ltd. announced its intention to buy New York-based manager OppenheimerFunds from Massachusetts Mutual Life Insurance Co. for about $5.7 billion in stock in a deal expected to bring the Atlanta-based firm's total assets under management to more than $1.2 trillion. OppenheimerFunds managed about $246 billion.
"It's clear that M&A activity is up within the asset management space," said Jason Schwarz, president of Wilshire Analytics and Wilshire Funds Management, Santa Monica, Calif. "We've seen a notable uptick throughout 2018 and we think this will continue."
Data from Sandler O'Neill & Partners show 255 deals took place globally in 2018, compared to 210 in 2017. Meanwhile, deal volume as of Dec. 31 reached $26.6 billion, vs. $21.2 billion for 2017.
The M&A deals that Sandler O'Neill tracked in 2018 involved a total of $3.71 trillion in AUM, up 28.6% from $2.88 trillion in 2017. Acquired firms had to have at least $100 million in AUM to be included in the firm's data.
"It was a stronger year," said Aaron H. Dorr, a principal at Sandler O'Neill and head of asset management in New York. "And the change can largely be accounted for an increase in alternative deals."
Following the Invesco/OppenheimerFunds deal, the second-largest transaction during the year (as measured by the assets under management of the target) was Paulson & Co. in November agreeing to buy a 25% stake in BrightSphere Investment Group, a $238 billion multiboutique manager.
No. 3 on the list was Hellman & Friedman agreeing in April to acquire managed account provider Financial Engines, with $169 billion in assets, in a deal worth about $3 billion.
Rounding out the top five largest deals were Mitsubishi UFJ Trust and Banking Corp. announcing in October plans to acquire First State Investments for A$4.1 billion ($2.9 billion); and Montreal-based C$308.3 billion ($226.6 billion) Caisse de Depot et Placement du Quebec announcing in December plans to buy a minority stake in Grupo de Inversiones Suramericana SA's $135 billion money management arm SURA Asset Management for $247 million. First State Investments, known as Colonial First State Global Asset Management in Australia, had A$213 billion in AUM as of Sept. 30
Sandler O'Neill recorded 95 acquisitions of alternatives managers in 2018, up 42% from the 67 recorded the year before. Mr. Dorr noted that the demand for alternatives managers was particularly focused on private credit and real estate businesses.
Also, per data from Sandler O'Neill, acquisitions of wealth managers increased 35% to 108 in 2018 from 80 in 2017.
"Investment strategies that have a lower correlation profile to long-only are going to be attractive to buyers. That continues to drive M&A activity as well as on the private equity side," said Mr. Schwarz from Wilshire.