Fund selectors are on the look out for merger and acquisition (M&A) activity. Tim Cockerill, head of research at Rowan Dartington, says: “M&A can be very disruptive. It distracts managers from their day jobs especially where there is a lot of uncertainty as to who is going to be the lead manager when old responsibilities overlap and only one can have the job in the new shop.
“It’s hard to build into planning, so unless there is a reason to be concerned I just look at the funds. An explicit example would be when it is known a company is up for sale or there has been a ‘problem’ in a company at the future is unclear.”
As such, distress can compound quickly, as was seen with Gartmore – investors withdraw money as problems begin. Mr Toogood believes that, for the time being, M&A activity is likely to be confined to ‘distressed’ situations. “I don’t believe that there will be much takeover activity outside of distressed situations. Fund managers don’t want to do it and it’s not necessarily the best time to do it either. And after some improvement in markets, no-one is particularly under the cosh.”
Of course, smaller quoted groups such as Investment Adviser 100 Club member Liontrust are always likely to be vulnerable to take-overs, but after a substantial recovery in the group’s profits and the popularity of the group’s Special Situations fund, the price may be higher than fund groups would be willing to pay. More distressed groups such as Martin Currie are privately owned and therefore less vulnerable, but are not immune.
The whole industry is under pressure from the passive sector. Vanguard has seen 190 per cent growth for the year. Investors are becoming more price sensitive post-RDR. In their most recent results, Jupiter announced an increase in AUM of £3.5bn to £26.3bn, but a fall in net revenues as initial fee income decreased.
The fund management industry is under pressure. However, for the time being a revival in equity markets has stepped in to prevent any distress among managers, except for some situations. M&A activity picks up if the climate substantially strengthens or weakens, but managers are unlikely to commit to deals while it remains uncertain.
Cherry Reynard is a freelance journalist
