Invesco nears $5bn deal to buy OppenheimerFunds
Acquisition would lift assets under management to more than $1tn
Invesco is nearing a deal to buy OppenheimerFunds for about $5bn, an acquisition that would vault the investment group into the trillion-dollar asset management club and highlights the scramble to bulk up in the face of mounting competitive pressures.
OppenheimerFunds’ owner MassMutual, a US life insurer, put the business with $248bn in funds under management up for sale earlier this year.
The acquisition would lift Invesco’s assets under management to more than $1.2tn — placing it in the upper echelons of the global industry along with Fidelity, BlackRock, Vanguard, Capital Group or Amundi.
People briefed on the matter did not expect a deal to be finalised until October and an agreement could still fall apart. Invesco’s shares had been up as much as 0.7 per cent on Friday, but fell back after the talks were first reported by Ignites, an FT Group publication, to end the day 0.4 per cent lower.
An OppenheimerFunds spokesperson directed questions to MassMutual, where a spokesperson declined to comment on “market rumours”. A spokesperson for Invesco also declined to comment.
Invesco’s chief executive Martin Flanagan was asked about potential acquisitions on a conference call with analysts this summer, and responded that “if there’s something that comes along that we think will materially improve the competitive positioning of the firm, we would clearly pay attention to it”.
The investment industry has enjoyed a bountiful decade thanks to rising markets swelling the levels of assets under management, and the fee revenue on those funds. But the competitive pressure on fees from cheap passive fund managers and rising regulatory and technology costs have prompted a bout of consolidation, with industry analysts predicting that scale and reach will be imperative in the coming years.
Invesco acquired Guggenheim’s exchange traded funds business for $1.2bn last year, as well as European ETF group Source, but a deal to buy OppenheimerFunds would be the biggest in the industry since the mergers of Standard Life and Aberdeen Asset Management in 2017 and Janus Capital and Henderson Global Investors in 2016 — and one of the biggest acquisitions outright in the industry on record.
OppenheimerFunds was founded in 1959 and acquired by MassMutual in 1990. It employs more than 2,000 people with offices in New York, Dallas, Seattle, Denver and Rochester, New York, and is presently run by Art Steinmetz, a 32-year veteran.
While OppenheimerFunds owns a small ETF business, it is primarily a traditional actively-managed mutual fund group. Such funds have come under growing price pressures over the past decade. The average cost of US bond and equity funds has slipped from 0.76 per cent and 0.99 per cent respectively in 2000 to 0.48 per cent and 0.59 per cent last year, according to the Investment Company Institute.
Industry executives expect the price pressure to intensify further in the coming years. Fidelity made waves recently when it launched a range of the first zero-cost index-tracking funds, a move that sent the shares of many listed asset managers tumbling.
“In the short term the industry can probably just absorb this move down in fees. After all, the asset management industry still enjoys high levels of profitability, but longer term this probably forces a change in the way investors think about fees,” Bernstein analysts said at the time.