The European asset management industry is expecting a new wave of international company M&A activity during the next 12 months as participants prepare to expand into Europe, Asia and South America. These were among the conclusions of a recent survey of European asset managers and administrators conducted by KNEIP, a leading service provider to the asset management industry.
According to the research, 90% of respondents believe that there will be an increase in international company M&A activity in the asset management industry over the coming year. The survey also found that 45% of respondents have firm cross-border expansion plans in place, while 42% are already considering international expansion into Europe, Asia and Latin America in response to an expected increase in investor interest from those regions.
Growing investor demand
Bob Kneip, Chief Executive Officer of KNEIP commented: “Having been through one of the worst financial crises in recent history, it is encouraging to see that the European asset management industry is looking ahead more confidently to the next 12 months. Asset managers are expected to grow by acquisition and many companies already have firm plans for expansion.”
KNEIP’s corporate actions data confirms this trend. While in the first 2 quarters of 2009 KNEIP recorded five company mergers and acquisitions, during the same period in 2010 this figure has already increased almost four-fold to 19.
Bob Kneip continued: “The anticipated M&A activity can largely be attributed to growing demand for UCITS products around the world, which have become associated with excellence and strong supervision. It is the only truly globally distributed investment fund product, with demand from Asia now particularly strong.
“Latin America has also accepted UCITS as providing a stable, high quality, well regulated investment product with significant investor protection. Pension funds in countries such as Peru and Chile have started using UCITS structures in the last few years. Chile is also the second largest consumer of UCITS funds from outside Europe, topped only by Singapore and followed by Hong Kong and Peru.”
In light of their plans for international expansion, 95 % of respondents consider it to be either ‘important’ or ‘very important’ to maintain a local point of contact for investors. Consequently, the industry says that investor communication should be one of the top three considerations for investors
A new focus on the investor
selecting asset managers, alongside absolute return and investment strategy. Risk strategy, distribution network and TER were also cited as determining factors.
In addition, related communication issues such as transparent reporting (65%) and enhanced investor education (47%) were cited as prime tools for restoring consumer confidence in investment products over the next 12 months.
Bob Kneip said: “Our survey shows the industry is learning vital lessons from this crisis. Investors are demanding greater information provision and less complexity. Consequently for asset managers, factors such as transparency, local involvement, investor communication and education rank much higher in importance today than in pre-crisis times. If they respond to this demand appropriately, we are confident that this will help to drive a more reputable and sustainable investment market going forward.”
In addition to company M&A activity, the study found that the industry expects a certain degree of streamlining over the next year, with 65% expecting more international and 40% more domestic fund consolidations.
UCITS IV and fund consolidation
Bob Kneip commented: “The industry is reorganising itself. While many asset managers have ambitious expansion plans, they are also looking to streamline operations by consolidating funds domestically and internationally. Until UCITs IV comes into force, international consolidation is only available to investment companies but, as from July 2011, all type of UCITS funds will be able to merge on a domestic and cross-border basis. It is therefore likely this trend will continue well beyond the next 12 months as asset managers take advantage of this benefit under the new regulation.”
Accordingly, the research found that 83% expect UCITS IV to have a major impact on the industry in the next 12 months. Changes to tax frameworks were also cited by 37%. In addition, 29% think the AIFD will play a role and only 34% considered the global recession to be the dominant issue going forward.