Morningstar: M&A is not the magic bullet asset managers think it is

Consolidation often burdens firms with more integration challenges than it does scale and fee benefits

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Consolidation has been increasingly utilised by European asset managers to up their scale and bolster growth in recent years, but it may not be the miracle cure firms had hoped for, according to a new report by Morningstar.

In many of the cases it examined, the integration challenges often outweighed the benefits. Hurdles such as cultural misalignment, leadership complexity, talent exodus, product rationalisation risks, and scale disadvantages that compromise performance “frequently distract senior leaders and investment staff from their primary responsibility of generating returns for clients”, the report said.

It noted that none of the three major European consolidations of recent years – those of Amundi, Janus Henderson and Aberdeen – achieved any “meaningful profitability improvements”. In the latter two cases, their mergers were actually followed by periods of sustained outflows.

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Lower fees were also touted as a potential benefit of consolidation, but this too turned out to be another pipe dream. “A firm’s market positioning, value proposition, and product mix appear to influence fee structures more strongly than whether it grows through acquisitions or organically,” it said.

Monika Calay, director of UK manager research at Morningstar, added: “Where firms have pursued M&A, our research shows that this hasn’t consistently delivered significant improvements in investment performance or cost savings for investors.

“Pricing pressure – especially in passive products – remains intense across all strategies, with fee convergence driven more by market forces than by consolidation.”

European asset managers may be coming to the realisation that pursuing mergers and acquisitions (M&A) is not the most efficient path to scale. Some 55 of the 99 major European firms Morningstar surveyed plan to grow organically instead.

They may be in the majority, but 28 firms still intend on using consolidation as their primary method of growth, with 16 other ‘opportunistic acquirers’ open to M&A if the right moment comes.

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Calay said: “The European asset management industry faces growing competitive pressure, including from large, scale-driven US firms. While high-profile transactions, such as BNP Paribas’ acquisition of AXA Investment Managers, and Natixis Investment Managers’ planned merger with Generali Investments, might create the impression of accelerated consolidation in asset management, our analysis of M&A activity among Europe’s leading asset managers tells a different story.

“Consolidation in Europe remains limited, with most firms favouring organic growth – expanding product offerings, capabilities, and operational efficiency – over M&A.”

Morningstar’s research ultimately found “no meaningful differences” between asset managers looking to grow organically versus those pursuing consolidation. Calay said it is therefore the firms focusing on improving their existing businesses that will benefit the most.

“Looking ahead, successful asset managers are likely to focus on innovation, digital transformation, and personalised, tech-driven solutions over scale. Selective consolidation may continue, but agile, client-focused growth strategies are likely better positioned to shape the industry’s future”

This story was written by our sister title, Portfolio Adviser