* Savings, pensions overhaul to increase asset manager value
* Deals traditionally tough to make work, staff key
* May entice new entrants; F&C deal highlights valuations
* In-house fund arms of insurers may also attract interest
By Simon Jessop
LONDON, March 20 A radical shake-up of the UK's
pensions and savings industry could be the trigger for suitors
to look afresh at deals in the asset management industry, even
if they can be hard to secure.
Up to 15 billion pounds ($24.76 billion) a year, by some
estimates, could find its way to the mutual fund industry after
the government relaxed rules forcing pensioners to buy an
annuity at retirement in Wednesday's budget.
At the same time, finance minister George Osborne raised the
limit on how much people could save tax-free in Individual
Savings Accounts to 15,000 pounds a year and loosened the rules
around what people could invest in.
"The outlook for asset managers in terms of new asset flows
is pretty positive," said Ed Dymott, head of business
development for Fidelity Worldwide Investment, particularly
given 70 percent of UK personal wealth is held by a generation
that is set to retire over the next 10 years.
The budget news boosted shares in fund managers on the day
and could make some of them, specifically those with a UK focus
such as Jupiter Asset Management and Henderson Group
, more attractive takeover targets.
Stuart Duncan, financials analyst at Peel Hunt, said the
budget may "stimulate potential buyers to think again", but the
hurdles to getting a deal done can be high, especially for fund
managers who are already competing in the same market.
That's because so much of a firm's value is tied up in its
managers, who, if they are not happy with a deal, could leave,
taking a large chunk of the assets they manage with them.
"This is an industry where consolidation is obvious and
logical, but the people and personality issues remain quite
challenging," Duncan said.
"Star" fund manager Richard Buxton, for example, left
Schroders for the fund arm of insurer Old Mutual
last year and within months millions of pounds had followed him.
One group of potential buyers who can avoid that issue is
the foreign firms who may want to buy an existing operation and
are willing to leave it largely as is - in the manner of Bank of
Montreal's ongoing bid for F&C Asset Management
They could include Macquarie, Natixis,
Mitsuibishi Corp, Royal Bank of Canada and
Ameriprise Financial, all of which have been rumoured to
be interested in the past, said David McCann, analyst at Numis.
Those who come will be able to tap a thriving market.
Total assets managed by UK fund managers of whatever stripe
for UK clients are around 3 trillion pounds, the Investment
Management Association said. While UK government statistics put
UK household currency and deposits at 1.3 trillion.
As markets have recovered strongly since mid-2012 so have
the fortunes of asset managers, valued in part for the size and
performance of their assets under management.
Over the period, the Thomson Reuters UK Investment
Management & Fund Operators Index has risen 73
percent, against a 26 percent for the FTSE All Share.
While the F&C deal had been criticised as undervaluing the
company by a leading shareholder - and as activist hedge fund
Elliot Advisors builds a stake in the hope of a bidding war -
valuations elsewhere are less attractive, analysts said.
"At a headline level, F&C was by far the cheapest. It's
peers, of a similar size or bigger, are far less compelling,"
said Numis' McCann.
While F&C trades on a price of 15 times earnings, just above
the sector median of 14, it has a weak operating margin - the
amount of money the company can keep after paying out costs,
such as staff - of 13.3 percent, Thomson Reuters data showed.
By comparison, Schroders and Aberdeen Asset
Management are on 21.7 percent and 36.5 percent,
respectively, with Jupiter on 28.2 percent, Henderson on 19.3
percent and Ashmore Group on 57.8 percent.
That fed through to a return on equity for F&C of just 2.49
percent, against a sector median of 15.5 percent, Reuters data
While suitors may look to buy a smaller sub-500 million
pound rival such as Polar Capital or Liontrust Asset
Management, neither are particularly cheap but the sums
involved are that much smaller.
They could even buy an unlisted fund arm, most of which are
held by insurers such as Legal & General, Aviva
and Standard Life - if they can entice them to sell given
the pressure Osborne has placed on their annuities business.
($1 = 0.6013 British Pounds)
(Additional reporting by Chris Vellacott, editing by David