The asset management (and asset gathering as a whole including the Life insurance business) has been reshuffling at an exponential speed over the last few months. This may yet just mark the beginning of something bigger.
Amundi had been a precursor through a listing and then through the acquisition of Pioneer by late 2016, initially freeing and then generating lots of capital for its main shareholder, CASA, desperately looking for fresh equity-type resources.
Be it or not a model to others, financial holdings (aka big banks and insurers) are set on “freeing” their asset management subsidiaries. That increasingly looks like a crowded trade.
Standard Life – Aberdeen has recently been selling its pure insurance activities so that it is a pure listed fund manager. AXA has been mulling over the flotation or sale of its AXA IM business for a while (possibly delayed/accelerated by the acquisition of XL in the US). Deutsche Bank is putting a price on DWS from next week as it sells a c. 20% stake.
14 March was another turning point as Prudential confirmed that it intends to split in a growth business (US–Asia) with the European rump being de facto a listed M&G, i.e. a fund management operation. Indeed it must only be matter of time until the European ex-Pru business sells its Life/annuities operations. On 15 March, Intesa said it was looking for a big partner willing to take 10-20% of Eurizon, its AM division. That looks like a two-step sale as well.
These listings/partial disposals/”give me a quote” operations may well reveal hidden value in financial holdings bent on simplifying. Given the timing, a pinch of suspicion is healthy. Such reshuffling comes at a time of increasing transparency driven by tightened regulations and increasing pressure on margins from ETFs competition. On the regulation front, transparency means tightened capital adequacy by business and region, showing gaping holes that need to be plugged here and there. Selling asset management assets is a quick win as it amounts to cashing in substantial capital gains on long-held assets with hardly any substantial equity base.
However, regulation also means higher costs today and potentially more capital/liquidity requirements later tomorrow for the same AM businesses. Some may be called systemic anyway. Selling them today amounts to handing the hot potato to the market. Investors are currently paying the sector at a relatively acceptable price (in the area of a 14x P/E, including for the DWS IPO). An M&G when it floats will be hard pressed to trade at more if there is a surplus of listed fund managers looking for market share.
Which brings us to a “phase 2” sort of outlook. Following that sudden increase in giant listed pure players (say the combined to be listed businesses may manage €2.5-3tn between them), one has to expect a wave of consolidation as there is no way to differentiate but through size as a way to dilute rising costs. Pretense to have differentiating products are just that.
The paradox is that consolidation will sever the original link with the financial holding companies that used to own them and above all sever the link that channelled new AuMs coming from retail networks. So that tomorrow’s giant fund managers will be nothing but a giant race against ETF pressure and rising costs (money gathering efforts and regulation).
Perplexing indeed. May be sticking to the parent financial holding companies is a better call.
Founded in 2007, AlphaValue is the world’s leading provider of Independent European Equity and Credit Research. We provide comprehensive, unconflicted research-only (no execution, no corporate finance) coverage of c. 480 European mid and large cap stocks. We have an average of 46% of negative recommendations at any one time. Learn more at www.alphavalue.com