June 25, 2009 / 5:21 PM / 10 years ago

European asset managers eye U.S. acquisitions

* Aberdeen among those keen to boost U.S. footprint

* KPMG says BGI/BlackRock “lit the touchpaper”

* Scepticism about bank fund arm sales

* Demerges of previous deals possible too

By Claire Milhench

LONDON, June 25 (Reuters) - European asset managers are eyeing U.S. fund houses, seeking to pounce while sellers outnumber buyers, delegates at the Fund Forum in Monaco said this week.

“We are seeing a large number of asset managers up for sale in the U.S. where their owners have taken the view that it is a way of strengthening their balance sheets,” said Martin Gilbert, chief executive of Aberdeen Asset Management ADN.L.

“I expect M&A activity to be pretty intense this year.”

Aberdeen is reportedly interested in acquiring Delaware Investments — with $110 billion in assets — from Lincoln Financial Group.

Gilbert would not comment, but he did say, though that acquiring a U.S. group is a priority this year.

“We already have a good presence in Europe and Asia but we want to increase our distribution capability in the U.S.”

The aim is to target both U.S. institutions and wholesale distributors of mutual funds, he added.

Aberdeen is not the only manager looking for a U.S. bargain. Tom Brown, head of investment management for Europe, Middle East and Africa at KPMG, believes the $13.5 billion BlackRock/BGI deal has “lit the touch paper” and ignited interest in deals.

“Up until now there has been a lot of talk, but this deal should spur some action,” he said. He confirmed that a number of European asset managers were looking at the U.S. managers that have been put on the block as banks look to divest asset management units in an effort to raise capital.

“Banks built up big asset management businesses in pursuit of safe, steady profit flow, but they have realised it isn’t quite as simple as that,” he said.

“The Aberdeens of this world are very hungry to buy up other businesses. I see more cross-border deals.”

U.S. mutual fund firms Putnam Investments and Janus Capital JNS.N are seen as consolidation players as they are sub-scale. Both have already implemented drastic cost-cutting to get headcount down after large outflows in 2008. [ID:nN1274098]


Although most expect an acceleration of M&A, some industry insiders questioned whether this would benefit the investor — and whether there might be a sting in the tail for some buyers.

“Consolidation is occurring because of a hunt for capital — but this is not exactly the best premise on which to build an asset management strategy,” said Mark McCombe, chief executive of HSBC Global Asset Management (HSBA.L).

“We believe there is value in an embedded asset management business — it has one of the highest returns on equity (ROE) so it is curious that there are so many disposals at a time when there is a search for ROE.”

Other managers were also sceptical about the urge to merge.

Edward Bonham-Carter, chief executive of Jupiter Asset Management, warned of the dangers of scale.

He said asset management was not like the car industry where the more cars made, the cheaper and better it is for consumers: “That’s not true of alpha performance [outperformance]. If you have talented managers, having flexible funds in terms of size and manoeuvrability is more important than just vast resources.”

Massimo Tosato, vice chairman of Schroders (SDR.L), questioned what the buyers of bank-owned asset management businesses would get for their money: “You are buying the assets and the capabilities, but not the clients, because they remain clients of the bank.”

“That suggests that over time, a large proportion of those assets will fade away. So how do you put a value on that company? It’s not an easy exercise,” he said.

“The idea that this industry will only consolidate is not a simple one. There will also be fragmentation,” said Amin Rajan, CEO of consultancy Create-Research.

He said many big cross-border mergers from the last few years were not working and might lead to demergers. “There is an element of merry-go-round here. I don’t think these mergers will bring about consolidation in the way the headlines suggest.” (Editing by Jon Loades-Carter)

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