EUROPE - Pride is preventing financial services organisations from selling asset management operations that are not core to their businesses, leading fund managers claim.
Fund managers’ profits have tumbled over the past four years and despite cost-cutting, consultants believe many firms are not profitable enough to survive and industry consolidation is inevitable.
PricewaterhouseCoopers says more than 50% of fund managers believe the number of firms globally will shrink by 30% over the next three years.
However, only a handful of deals have taken place over the last three years, most notably the merger of Friends, Ivory & Sime and Royal & SunAlliance Investments.
But Investec Asset Management chief executive Hendrik Du Toit said that before any consolidation could take place, financial services organisations must swallow their pride and jettison fund management outfits that were not core to their business.
Du Toit said: “Consolidation is always the great next thing and it never happens in this industry. Why? Because 90% or more of fund managers in the UK and Europe belong to insurance companies or banks.
“Therefore they are subsidiaries of large organisations for which they don’t really take priority. So when consolidation has to happen in the industry, corporate pride first has to go, or fund management has to cost a lot of money and bring a great deal of embarrassment.”
State Street Global Advisors chief investment officer Alan Brown (pictured) said:
“Firms in the last several years have taken the opportunity to consider what their real core competencies are and have focused their businesses accordingly. But it is still very much a wrench to get completely out of the fund management business.”
But Deutsche Asset Management European chief executive Paul Manduca disagreed and said the main barrier to consolidation was the negative reaction from schemes and consultants that followed deals.
He added: “If a fund management operation is not losing money – and it is not capital intensive business – you can run with it for much longer than people believe. There’s always a chance the market will turn up and make it into something that’s profitable. I think there’s always a hope value.”
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