The word ‘consolidation’ usually has the power to raise investors’ pulses since it carries the promise of a wave of profitable mergers and takeovers.
But there has been a desultory response to a new forecast of consolidation in the global wealth management sector.
Upheaval is looming, yet shares in the UK players have been largely overlooked, unlike their American counterparts.
Is this an opportunity, especially as US wealth management behemoth Blackrock believes British shares of all types are an alluring proposition at present, with bad economic news priced in?
In a report this month, the PwC consultancy says 73 per cent of wealth managers are contemplating a bid or other deal, with one in six businesses set to be swallowed up.
These predictions of attrition follow last year’s near-10 per cent fall to $115.1trillion in the savings entrusted to the care of these professionals. Most prefer to call themselves ‘asset managers’ –maybe because, in a high inflation era, it is tougher than ever to preserve clients’ wealth.
Olwyn Alexander of PwC says: ‘Existential challenges are sweeping this industry against a backdrop of social, economic and geopolitical disruption.
‘Firms that effectively leverage technology such as generative artificial intelligence (AI) and robo-advisers, build meaningful inroads to new and existing customers, diversify recruitment, and deliver exceptional client experiences will be well-positioned to not only survive, but thrive.’
This prediction coincided with yet more consolidation among UK players, after Rathbones’ £839m swoop on Investec Wealth.
Gresham House, which specialises in renewable energy projects, is to be acquired for £470m by the US private equity group Searchlight Capital. The announcement of the 1105p per share bid caused Gresham shares to leap by 55 per cent, a cheering development for anyone with cash in Henderson Smaller Companies and Martin Currie Smaller Companies. Both trusts own Gresham House shares.
But, despite this evidence that British asset management outfits seem to be US private equity’s cup of English breakfast tea, shares in many of Gresham’s peers are anything but perky.
FTSE 250-listed Liontrust, which is attempting to snap up Swiss firm GAM, is down 45 per cent since the start of the year. Over the same period, Jupiter has tumbled by 14 per cent to 115p, which is 40 per cent below the price at flotation in 2010. Ashmore, Brooks Macdonald and Quilter have also dipped, raising eyebrows. Ashmore has an 8.24 per cent dividend yield and the other two are seen as likely bid targets.
These declines may reflect Bank of America’s gloomy assessment of the UK asset manager sector which appeared in January.
But the share price weakness underlines the view that size matters more than ever. Some contend only those with assets under management (AUM) of £100billion-plus can survive and thrive.
For example, shares in Abrdn, the group formed of Aberdeen and Standard Life, are up 25 per cent this year; its AUM are £367billion. Shares in St James’s Place are down 12 per cent in response to reductions in its much-criticised fees.
But it has an impressive client retention rate (a key metric) of 95.6 per cent and AUM of £157.5billion.
Hargreaves Lansdown has AUM of £134billion and its stock is up 12 per cent over the past month.
Most analysts consider the shares a ‘buy’. But not everyone believes that this platform (financial supermarket) will be a winner thanks to its low-cost offer.
Rhea Shah, analyst at Deutsche, now rates the shares a ‘sell’, on the basis that there is more downside than upside in the outlook. Many investors will be bemused by the generally downbeat perception of Britain’s asset managers in light of our ageing population: more retirees will need help managing their pension pots.
As an insider, Dan Boardman-Weston, CEO of the independently-owned BRI Wealth Management, can see positives. He says: ‘The sector is an attractive market due to favourable demographic trends and the growing demand for savings and investment advice. The sector provides good levels of recurring income and strong profit margins.’
He believes that there will be trade and private equity buyers on the prowl.
The FTSE 100 has edged up almost 2 per cent this year, held back by recession apprehension and apparently unmoved by the belief of Blackrock and others that this index and others are full of bargains in asset manager and every other type of company. Sentiment could shift rapidly, however.
If you’re convinced asset managers are poised to prosper from more demand for their services and succumb to bids, it looks like the moment to take a gamble.
But if you’d rather take more immediate steps to boost your wealth, check out your asset manager’s credentials against rivals on findawealthmanager.com.
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
