BlackRock Inc.'s purchase of
Barclays Global Investors
(BGI) on June 16 in a staggering $13.5 bn deal created
Blackrock Global Investors—the biggest asset manager in the world. The deal is
said to unite BlackRock's expertise in fixed income with BGI's renowned
index tracking, notably through its retail arm, iShares. BlackRock-Barclay's deal
is not the first or the single deal of this year; the industry has been on a
consolidation drive. Aberdeen Asset Management's buying of
Credit Suisse's asset management arm; Crédit Agricole's purchase of
Société Générale's asset management
arm; BNP Paribas' acquisition of Fortis Investment Management; Invesco's
purchase of Perpetual; and Henderson Global Investors' purchase of New Star
Asset Management are some other recently struck deals. Industry experts
do not rule out more mergers ahead.
The global fund management industry prospered for the last 25 years
with rising asset prices and exorbitant fund managers' fees. However, with the
unforeseen descent of the "too big to
fail" banks in the US, the industry came under heavy criticism. It witnessed a
massive decline with falling stock markets, heavy exodus of clients and
scandals like the Bernie Madoff Affair. International management consulting
firm, Oliver Wyman estimates that about a third of the assets and 40% of the
revenues have disappeared and as many as half the world's asset managers
are struggling to break even. Call for new regulations have still worsened
the prospects of the industry. The report "Future of Investment: The
Next Move?"—based on a survey of 225
asset managers from 30 countries, responsible for a total of $18.2 tn
assets—says that increased regulation will
raise costs and intensify competition. Against this backdrop, analysts
opine that consolidation alone can change the facets of the industry. They reckon
that since the fundamental economics of the asset-management business has
deteriorated, synergistic effect of mergers may prove fruitful. However, there
are also diverse views on the benefits of the consolidation to investors, though
it may be beneficial to the industry as a whole. |
