Funds industry body plays down merger mania

LONDON (Reuters) - Despite high-profile mergers and acquisitions among funds firms, the UK sector remains problematic for M&A activity and could yet frustrate those betting on widespread consolidation, a new industry report said on Monday.

Presenting the results of its annual survey, the Investment Management Association (IMA) acknowledged that falling revenues were driving job cuts and consolidation as institutions, under pressure to raise capital, seek to hive off their fund management arms.

However, it said: "Wide-scale consolidation of the industry is far from a certainty. Capital constraints remain an issue and some interviewees had doubts about the extent to which independent asset management firms might seek to bid for large captive firms".

The IMA highlighted the tough job of handling star fund managers who can make or break firms as they consider their options in an M&A situation. It also noted the potential impact on client flows if investors or consultants are spooked by what looks like a tricky integration.

"There are ... a number of reminders of how difficult it is successfully to engineer M&A activity in the asset management industry. A range of issues have historically complicated such efforts, including the human capital focus."

In June 2009, Barclays (BARC.L) said it would sell its asset management division, Barclays Global Investors, to BlackRock (BLK.N). Other key recent deals involving banks include GLG Partners (GLG.N) acquiring parts of Societe Generale Asset Management (SOGN.PA) and Aberdeen Asset Management (ADN.L) acquiring parts if Credit Suisse Asset Management (CSGN.VX).

Highlighting the low levels of concentration in the industry, the IMA noted that at no point over the last five years has the share of the largest 10 firms exceeded 50 percent of the market.

Insurance-owned asset managers remained the largest single group, with just under 30 percent of assets under management.

The IMA survey, which was based on responses from 75 firms managing 2.8 trillion pounds in total assets, said assets managed in the UK by all IMA members had fallen 11 percent to 3 trillion at the end of 2008.

Revenues, which are directly linked to assets, fell 8 percent to 9.4 billion pounds.

The survey estimated that direct employment numbers for Britain-based asset management fell 3 percent to 24,750 at the end of 2008. IMA said the "extreme market dislocation of 2008" pushed a number of firms into making rapid cutbacks.

(Reporting by Raji Menon; Editing by Rupert Winchester)