U.S. stocks plunged into a bear market this month, marking a period of volatility in markets that may spark more unions between money managers, either in the near or longer term, sources said.
The industry is already under tremendous pressures related to declining fees, shrinking operating margins and negative net flows, particularly in active management, said Lee Beck, managing partner at Kudu Investment Management LLC, a New York-based capital provider for asset and wealth management firms.
Coronavirus concerns "just exacerbates this," Mr. Beck added.
"This gives (money manager) CEOs the excuse to tell stakeholders, 'I need to find a long-term solution.' I also think this increases consolidation talks for the next year or two," he added.
This may entail talks to buy another money manager or sell off an asset management unit, for some firms, he said. Also, firms "may open up talks to be acquired, where they wouldn't have six months ago."
Catherine Seifert, an equity analyst at CFRA Research, New York, said that further down the road, more money managers may consider consolidation to boost their scale and diversification — but "that doesn't offset secular pressures," like the move to lower fees and passive investing.
"You may see (M&A) once the dust settles," she added. "While we are in the throes of such a heightened degree of volatility and uncertainty, I would expect some paralysis as it pertains to M&A and long-term strategic actions," Ms. Seifert said.
Greggory Warren, a senior analyst at Morningstar Inc., Chicago, said in an email that one concern for any money managers thinking of striking up a deal now is that "prices are too cheap for any selling fund firm to consider selling," especially for publicly traded managers that could "run afoul of shareholders" with such an action.
"I wouldn't expect to see any deals come to fruition until we get to the other side of this," Mr. Warren said of historic market declines.
