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Tinder finance: When asset managers swipe right…

21 October 2020

By Henry Adefope, Corporate

Just like dating, a union between two different companies can bring enormous opportunities for clients/customers, investors and staff. Unions between asset managers have a lot of parallels with celebrity relationships albeit not as exciting as Ant & Dec, Posh & Becks or the Chuckle Brothers.

The unions of wealth and asset managers are often mutually beneficial for all parties involved, particularly if they are based on sound fundamentals and clear strategy for post-merger integration and growth.  But when it goes wrong, just like any relationship, the damage can be irreparable.

Some have gone spectacularly wrong; some have gone spectacularly right. While BlackRock’s mega merger acquisition of Barclays Global Investors in 2009 made it the world’s largest money manager, consolidation has proved to be a bag of mixed results for other firms. Two very high-profile recent deals, for example, couldn’t stem outflows, showing the risks of merging to survive.

What your friends and family (staff, investors and asset owners, policymakers, regulators etc.) make of a relationship often plays a role in how it progresses and ends up. They are normally the first in the queue with the ‘I told you so’ nags, which for asset managers in this context means…

  • Exclusion from mandate tenders;
  • Conflicts of interest;
  • Exclusion from ‘best buy’ lists;
  • Sustained outflows and redemptions;
  • Staff exodus
  • And sometimes worse…

So, what friends think, matters. Those fortunate (or strategic) enough to receive the blessings of all stakeholders privy to the new relationship, set things on a seamless path that creates long-term value. The reverse can be the case if stakeholders’ approval is lacking. Some common things that discerning hacks sharpen their knives for are:

  • Cost-efficiency: There was already increased pressure on costs before, but the Covid-19 pandemic has hastened some deals. Passing on savings - lowering expense ratio for fund shareholders after a merger, or at least communicating the intention to, goes a long way…
  • Scale: Deals that help asset managers broaden their existing product offerings while also expanding their product suites into specialist, niche areas i.e. alternative investments and environmental, social, and governance offerings,’ where they may enhance their revenue streams – is a good thing. Let your friends know.
  • Story: Just like in any traditional union, the bride and groom are more than often required to explain to their loved ones why their love for one another makes sense.  The merger must have a clear narrative and logic which shows why it is beneficial to both parties.
  • Chemistry: having a clear and realistic post-merger integration plan, including mapped out responsibilities and established post-deal communications. Post-merger integration planning needs to begin as soon as you start negotiations, and thereafter communicated to those that matter.

Just remember that with any courtship, if it looks serious, the relationship can flourish more easily if you run it by your friends and family first. Corporate Purpose is emerging as a necessity for the business community post-COVID (if we ever get there!) and expressing this in the run up to and following the big announcement, will give your union the best chance of surviving in the long run.