One of the supposed benefits of capitalism is that it leads to greater choice among consumers, but the industry that perhaps relies most heavily on this economic model – asset management – seems intent on reducing it.
Fund groups are snapping each other up like half-price televisions on Black Friday as they clamour to boost their assets under management after a tough couple of years.
The latest activity this week was Lansdowne Partners’ acquisition of boutique asset manager CRUX, which houses the well-known European fund run by veteran stockpicker Richard Pease, who is to retire after the deal.
This comes just weeks after Liontrust’s bid for GAM, which remains on the table, with the former having snapped up Neptune Investment Management only a few years ago.
As a journalist looking for quotes from different sources, this makes life more difficult, as the pool of options gets smaller. But for investors, the outcome could be far more damaging, as the number of options available continues to fall.
So why are they doing it? After a tough few years in which markets have fallen and funds have seen outflows across the board, the amount of money generated by fees will be lower.
By hoovering up the competition, asset managers can charge the same percentage in fees but on a larger amount, generating higher profits.
But it leaves investors with a difficult decision – should they go for the big names, knowing that they are unlikely to be disrupted, or punt on boutiques that stand out from the crowd?
There are a number of factors to consider. First there is the issue of funds closing or merging with existing portfolios run by the acquiring firm, which often happens when they invest in the same region or theme.
Integration can also take time, so it is important to know what new roles existing fund managers will be asked to fulfil. Will they be given new portfolios to run? Will they have to head up a department? Will they have to focus more on marketing their products? All of these activities could take time away from running their original fund.
New managers could also be brought into the fund, perhaps signalling early succession planning.
Even if a fund remains under the same manager and is left untouched, it may have to fit in with a certain way of investing under a new head of department who may have a different attitude to risk or return potential.
Of course, there can be benefits too. A bigger research team may help uncover new opportunities, while fees could be reduced as investors benefit from economies of scale.
What can we do about it?
Do we as end investors get a say in it? The answer is not really. But while we can’t stop these firms from buying each other, we can at least make sure we are getting value for money.
When a merger or acquisition is announced, it is vital to ensure the same manager stays with their fund and that it will continue to be run in the same way.
These funds may also require closer scrutiny in future: particularly in terms of performance and which assets they buy and sell.
While our options are becoming more limited, we can always make the decision to sell out if we aren’t happy. And, while M&A activity is reducing choice at the top end of the market, our capitalist society, which rewards innovation, means there should always be a steady supply of new funds and boutique groups opening up at the lower end. Hopefully, Trustnet will ensure you have all the information you need to make the best choice.