Active managers hope for a Legg up from consolidation
One huge thing to start: Donald Trump extended clemency to several high-profile white-collar criminals on Tuesday including granting a pardon to one-time ‘junk-bond king’ Michael Milken. Read more here.
Now to today’s main item . . .
If DD had to sum up the survival guide for active fund managers, it would be pretty short: get big or go home.
Asset growth among midsize active managers has largely ground to a halt, with some blue-chip institutional investors experiencing something worse: outflows as clients pull money and plough that cash into cheaper, passive alternatives.
The writing has been on the wall since the aftermath of the financial crisis, when index-tracking funds exploded in popularity. That boom has meant that asset managers relying on star traders — who for generations were a key factor in whether assets flowed to one fund house or another — have had to look elsewhere for growth.
The solution for many asset managers, as pitched by their Wall Street advisers, has been to consolidate. And that means either buying a competitor, or stomach being swallowed up by one.
Franklin Templeton on Tuesday chose to do the former when it announced that it would buy Legg Mason for $6.5bn, including debt. The combined business will manage $1.5tn, catapulting the company into one of the very largest asset managers, behind juggernauts such as Vanguard and Fidelity. Franklin chief executive Jenny Johnson (pictured above) told the FT she’s playing “offence” not “defence”.
Fund managers in Europe have followed the same playbook.
On Monday Jupiter Asset Management agreed to buy rival Merian Global Investors for £419m in a deal that, with a total of £65bn in assets, will create Britain’s second-largest manager of retail funds. The FT’s Owen Walker has the inside story on Jupiter and Merian’s marriage of convenience.
But do not expect any of these deals to curtail the giant that is BlackRock. The world’s largest asset manager is in touching distance of also becoming Britain’s biggest in a sign that the UK — one of the strongest bastions of stockpicking — is following in the footsteps of the US with its embrace of low-cost, index-tracking funds. More on that from the FT’s Siobhan Riding and Chris Flood here.
Across the English Channel, the French fund management group Amundi bought the €23bn asset management business of Spanish bank Sabadell last month for €430m. It’s a tried and tested method for Amundi, which has routinely turned to acquisitions.
Investors received the latest active manager tie-up with glee on Tuesday. Shares in Legg Mason inched above the $50 offer price after the deal was announced, which puts the company’s shareholders in prime position to demand a better offer.
One investor has already given the deal his blessing. Nelson Peltz (above), whose activist hedge fund Trian Partners owns a 4.5 per cent stake in Legg Mason, called the deal “compelling”.
The billionaire is set to make $70m, according to Bloomberg. Not bad for a second go. Peltz joined the fund manager’s board again last year, having already had a stint from 2009 to 2014