1 billion club of fund management eats its peers

1 billion club of fund management eats its peers

The good news for the fund management industry is that the pool of assets available for surveillance rose nearly 16 percent last year to a record $ 94 trillion, the fastest pace in nearly a decade.

The bad news – at least for those outside the $ 1 trillion club – is that the world's top 20 companies have increased their market share to an all-time high.

The middle of the industry is being squeezed like never before, according to a report by consulting firm Willis Towers Watson Plc. The elite has increased its market share from 38.3 percent to 43.3 percent over the past decade. These increases resulted almost entirely from a corresponding decline in the number of companies from 51 to 250. The market share fell from 33.6 percent to 28.2 percent.

As a group, the top 20 increased their assets under management by more than 18 percent to control nearly $ 41 trillion of the total market – and every club company controls at least $ 1 trillion. In eight of the last 10 years, growth in the top 20 has surpassed that of the 500; The average annual growth rate for the aristocrats is 4.6 percent, compared to 3.1 percent for the broader group. And BlackRock Inc., the largest company of all, increased its assets in 2017 by more than a fifth.

The study corroborates a July report by consulting firm Bain & Co., which found that companies managing around half of the world's assets face a "valley of death". There is a split between small, nimble companies offering specialized investment services and mega-companies All-service companies are exploiting economies of scale to counteract the headwind of ever lower fees and increased regulatory costs. Those in between are expected to merge or die.

Consolidation was limited, however, and the companies that made deals were not rewarded for their efforts. The merger of Janus Capital Group Inc. with Henderson Group Plc, the combination of Standard Life Plc and Aberdeen Asset Management Plc, and the purchase of Pioneer Investments by Amundi SA last year, do not preclude these investors from widespread concern among investors Prospects for the industry are kept safe.

Invesco Ltd. Earlier this month, it agreed to buy OppenheimerFunds from Massachusetts Mutual Life Insurance Co. for approximately $ 5.7 billion. This prompted Ken Jacobs, the chief executive officer of Lazard Ltd., the sole advisor to the MassMutual transaction, to say that he was considering selling his firm's $ 240 billion asset management department at the right price.

And therein lies the paradox. Fund managers' stock prices were hit this year, which made them more favorable. But that also means that the potential acquisition currency will be greatly reduced. At the same time nobody wants to be a desperate seller. It is a lost situation.

Medium-sized companies will continue to lose market share to their bigger brothers. What raises the question I asked earlier this month: Why invest in an investment firm?

To contact the author of this story: Mark Gilbert at magilbert@bloomberg.net

To contact the publisher responsible for this story: Edward Evans at eevans3@bloomberg.net

This column does not necessarily reflect the opinion of the editors or the Bloomberg LP and its owners.

Mark Gilbert is a columnist for Bloomberg Opinion Asset Management. Previously, he was the head of the London office for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

© 2018 Bloomberg L.P.

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