The news today that Carne have acquired AMX and that KB has been acquired by Waystone has sent quite a ripple across the tranquil waters of Management Company services and the wider fund services industry. Two in one day is not just exceptional: seeing the biggest players in the marketplace coming together in difference guises is quite something. I had to check the calendar to make sure it wasn’t April 1st or that someone hadn’t hacked my LinkedIn profile and played a joke on me. 😊
As we all know this isn’t the first and it certainly won’t be the last that we see in this space. To a certain extent it reminds me of the estate agency industry consolidation in the very early 1990s here in the UK, when every estate agent sold out to the banks and insurance companies for hugely inflated figures as the latter wanted to build market share. However, after the lock-ins expired it became clear that house buyers weren’t too happy with the new marketplace and avoided the big boys and instead went to seek out the smaller independent firms who were now setting up just around the corner. Funnily enough, these were set up by the very people who had sold themselves out to the banks and insurance companies just five years earlier. Famously Prudential sold their multi-million-pound investment for £1.00 many years later as they realised it wasn’t for them.
Now I’m not suggesting that the big boys in ManCo-land are doing the same and this is just another land-grab, but it begs the question: who are the beneficiaries in all of this? Fund managers? Investors? Administrators? Most acquisitions in the fund’s industry are normally as a result of the egos of the CEO and board looking to be the biggest in whatever space they sit. Having been involved in far too many to mention in my career, I can say categorically, most don’t work out for the good of investors, staff and suppliers. Shareholders may get some benefit in the short term but unless the deal adds true value it rarely feeds through to the share price and exceedingly rare to others. The private equity guys will have made a killing on the deal, that’s for sure!
So why do they do it and what can we see from today’s announcements? It’s too early to say when it comes to today’s to be fair, but it will be interesting to see what happens. We’ll likely see duplication of staff and services in some cases and no doubt there will be job loses as the businesses try to extract value for the shareholders. But what about the fund managers who use these services; we wouldn’t exist without them. How will this change the landscape for them?
For new managers, less choice is the obvious answer. With fewer options out there the smaller ManCo firms will ultimately benefit as they look to onboard managers who prefer not to be lost in the huge assets of the big guys. Equally there may well be current managers who won’t be too happy about the changes and may well vote with their feet. I’m pretty certain there will be firms who moved from one to the other due to service/price issues and now find themselves back where they came from. Awkward!
There are some tough decisions to be made over the coming weeks and months for many, and I’m sure they will be scratching their heads as to what steps to take next. For the rest of us we will watch with interest and all of us will be freshening up our pitch books with new graphics as to why Managers should come to us. The reality is that some do like the big firms as they get comfort from that. The old adage in fund sales is that you always knew that the wealth guys bought certain big firms as they wouldn’t get fired for choosing a big firm, whereas a boutique…? Many fund managers will stay where they are but there will be many others who will take stock, review, and ultimately decide to move on as the new culture is not what they want, and they may feel they have got lost in the new mega firm. Instead, they will look for firms that give that warm feeling at a price that suits them. There will be fewer firms to do that as the consolidation of the industry grows, but let’s hope that there will always be the smaller independent firms offering that personal approach with a deep sense of understanding of what a fund manager needs. As one of our earliest fund managers said to me when they came on board: “Stuart, you get rid of the sh*t on my desk and for that I am grateful.” Today I’m wondering if, today, some Fund Managers out there are wondering if the “sh*t” just landed back on their desks?