Amundi's acquisition of Lyxor Asset Management marks a significant moment in Europe's exchange-traded funds industry, with a potential European champion finally emerging and also once again highlighting the importance of scale in the passive business.
Last month, Paris-based money manager Amundi announced it had entered exclusive negotiations to acquire Paris-based Lyxor in an almost $1 billion deal.
Amundi — with €1.76 trillion ($2.07 trillion) in assets under management as of March 31 vs. Lyxor's €124 billion — highlighted the ETF angle of the deal: Lyxor's European ETFs AUM was €77 billion as of Dec. 31, the third-largest player in Europe, while Amundi's was about €66 billion, putting it in fifth place. As of March 31, Amundi's AUM had grown to €77 billion.
But the combination, creating a roughly €150 billion European ETFs player, would propel Amundi up into second place, behind only BlackRock Inc.'s iShares, according to quarterly rankings data by Morningstar Inc. IShares had €466.1 billion in European ETFs AUM as of Dec. 31, according to the data provider.
The deal gives Amundi a greater foothold in an area of growth for money managers — particularly given their performance throughout a challenging 2020, sources said.
The passive fund market represents a little more than 20% of total fund AUM in Europe, compared with almost 50% in the U.S., according to Marina Cremonese, vice president and senior analyst at Moody's Investors Service Inc. in London. "There is a solid potential for passive and ETF growth in Europe," she said in an email.
"Amundi acquired Lyxor to accelerate its ETF development in Europe, a market reliant on scale and where it expects a 12% compound annual growth between 2020 and 2025." Ms. Cremonese also noted that the combined firm's market share will be about 14%.
The deal for Lyxor "has been a long time coming. (Parent company Societe Generale SA) as a shareholder was always hesitant to sell — there have been a number of approaches from private equity firms and industry players over the years," said Richard Bruyere, Paris-based managing partner at money management strategy adviser Indefi.
And sources said Amundi had made a solid, sensible deal — and probably "the last opportunity for an acquirer to really build some form of ETF business at scale and rapidly," Mr. Bruyere said.
Adding Lyxor brings Amundi "the scale to compete in Europe and beyond. They have local distribution in key markets and affiliated distribution networks — Germany, Spain, Italy and France. Whether they're a strong global challenger to the leading incumbents remains to be seen, but it's a better position to be in than to be two small fish in a big pond," Mr. Bruyere said.
Being one big fish means the combined ETFs platform is an important change in the European market. BlackRock, Vanguard Group Inc. and State Street Global Advisors, which dominate the global ETFs market along with Invesco Ltd.'s Powershares, have serious scale and can use that to "dominate the markets, and they've done that in the U.S.," said Steven Libby, EMEA asset and wealth management leader, partner, at PricewaterhouseCoopers in Luxembourg. "What that says is that the U.S. players (are) really primed to continue to bring that scale into Europe, and therefore what can European players do? Where is the European champion?" he said, in a European ETFs market that has the potential to reach up to $2 trillion by 2025. European ETFs AUM is currently about $1.37 trillion.
It's now down to Amundi to bring together Lyxor's expertise in ETFs, including "financial engineering" in creating products, or synthetic ETFs, with its own business. Doing so would create more scale "to play in a market where scale is obviously extremely important, particularly because pricing will continue to (put) pressure on it," Mr. Libby said.
And while the European pricing war is not so cutthroat as in the U.S., sources said, scale is still important for pricing. ETFs are not a cheap product to create, run and market — providers need to consider listings costs, the charges associated with intraday pricing and trading, and other fees.
"In terms of the financials, the more assets (a passive manager runs), this dilutes their fixed cost base — and as passive fee rates are typically lower than active, scale is an important way for (managers) to maintain their margins," said Nalini Kaladeen, London-based director in the EMEA non-bank fixed-income team at Fitch Ratings Inc.
While the acquisition looks sensible from Amundi's point of view, "Is this an absolute game changer at the moment? That's not our view at this stage, but we have noticed that passive investments relative to active have performed fairly well through the pandemic crisis so far, and this makes the case a little bit harder for active managers to justify the higher fees that they charge," said Ben Schmidt, Frankfurt-based director in the EMEA non-bank fixed-income team at Fitch.
But Amundi has also added active business through its Lyxor acquisition — the firm also runs about €47 billion in active strategies, primarily alternatives. Amundi currently has no presence in the liquid alternatives space — something Lyxor brings. "It would probably be credit positive in terms of the diversification aspect for us," Ms. Kaladeen said, referring to the overall acquisition. "Moving into alternatives is something we have seen as a trend in the traditional investment management sector. I would say this is probably a continuation of that theme."
