Our latest asset management sector thought piece looks at how talent is affected when investment management companies merge and asks the question – who wins?
In the last five years the UK asset management sector has faced higher regulatory costs and downward pressure on fees. There has been rapid growth in the passive fund sector and active investors are more exposed than ever to produce returns above benchmark.
This has led to a period of consolidation in the sector. Larger asset managers continue to scale up and take advantage of the economic scale benefits this brings. We have seen this with the Janus Henderson merger, Mass Mutual consolidation (Barings), Standard Life/Aberdeen merger and Columbia Threadneedle to name a few.
Is it worth it though? Do shareholders benefit? Do customers prosper with better fund performance? And do the people within these companies benefit? Who wins?
During a merger process, regulatory procedure creates a period of inevitable uncertainty (with restricted communication) that often results in employees considering their futures – especially investment staff who are naturally trained to analyse different outcomes and work out where the pressure points are likely to be – both at the company level and for themselves.
As fund management recruiters we see first-hand the disruption this has on key talent.
If the merger is a good fit i.e. with minimal product overlap, cultural similarity and improved distribution capability – then generally it’s a positive outcome. If there is significant overlap across investment teams, product lines and client channels then it often creates an environment of uncertainty inside the businesses. This can lead to opportunities for competitors to poach the best talent these companies have. We see this trend increase with mergers that are defensive in nature, where the primary objective of the transaction is AuM growth or to halt AuM decline. In such instances, people, product and client channels are sadly a secondary consideration.
This often leaves the new merged entity without its best people which in turn has a knock-on effect to the performance of its funds, AuM retention, shareholder value and most importantly – the value of their customers’ investments.
Does size matter?
At the smaller end of the market, we see less disruption as the cultures of these businesses are more entrepreneurial, less political or bureaucratic in nature. The CEO’s are more likely to know the people in their business better and perhaps because of their size they appreciate far more than the larger asset managers the value of their business is essentially the people that walk through the door every day.
A good example is the Premier/Miton merger, which has very little investment product overlap and would appear culturally aligned. LionTrust acquiring Neptune is another recent example that would appear logical and complimentary.
Our advice to boards considering a merger is this – ask yourself a simple question – if you are going to make a recruiter’s job easier to distract your best talent, then the transaction might not be such a good idea.
Paul Young heads up the Asset Management division at McLean Partnership. For more information or a confidential discussion on how we can help, please contact Paul on 0131 3000 250 or PaulYoung@mcleanpartnership.com