Asset and wealth management finished 2019 on a strong note, with 50 reported deals during the fourth quarter. The robust performance pushed up volume for the year to a record 212 transactions. Deal value also hit a record in 2019. Disclosed transaction value totalled $41.6 billion, more than twice the 2018 level. The $26 billion purchase of TD Ameritrade Holding Corp. by Charles Schwab Corp. in November fueled the surge.
We expect the dealmaking momentum to continue. Persistent fee pressure, declining AUM at many firms, and a convergence of AWM and insurance will be big challenges for second- and third-tier firms, likely making 2020 another blockbuster year for consolidation and more AWM deals.
“The AWM sector continues to consolidate, driven partly by the stark fact that AUM has shrunk at 30% of mutual fund managers during the past five years. We estimate that by 2025, at least 20% of fund managers will be acquired or eliminated.”
The AWM industry has never been so ripe for consolidation. Fundamental challenges to the sector’s business model and pricing structures—along with other trends discussed below—will probably trigger a wave of consolidation in coming quarters. Asset and wealth executives are busy trying to solve an array of problems. The big question is what comes next? The next wave of transformation will probably sweep across the mutual fund industry. Mutual funds will need to act decisively in order to remain competitive and relevant. Their actions are sure to drive deal activity in the months to come.
Mutual fund vulnerability: In a recent study we estimate that 20% of mutual fund asset managers will be acquired or eliminated by 2025. Although the industry is growing on the whole, assets are becoming increasingly concentrated among a handful of top players. We expect that trend to continue. In order to survive, active managers who experience significant investor withdrawals will need to evolve or, more likely, consolidate. We believe that managers should expect fee compression to intensify as equity markets cool down. They should not count on the tailwind of stock market appreciation to continue throughout 2020.
Convergence of AWM and Insurance: A convergence of insurers and asset managers is blurring the line between the two sub-sectors. While this trend is not new, we have seen an acceleration of transactions between the two sub-sectors in both directions. Assured Guaranty recently acquired BlueMountain Capital Management, a credit fund manager, in an effort to diversify earnings. We expect asset managers to acquire insurance companies in an effort to boost assets under management. Such deals would also provide a stable source of capital and a long-term stream of fees.
Alternative managers continue to feel performance pressures: Hedge funds in 2019 weathered another difficult year, especially in comparison with the hefty returns of public equity markets. Alternatives managers continue to feel the pressure to perform or risk investor redemptions. Persistently weak performance could prompt investors to reduce their asset allocation to this sub-sector. In contrast, we expect private equity investing to remain popular and prominently active in dealmaking. Several new asset managers entered the minority staking space in 2019, focusing on investing and providing liquidity to private equity managers. Dyal Capital Partners, a unit of Neuberger Berman, recently announced that it raised $9 billion for a new fund focused on such investments.
We define M&A activity as mergers and acquisitions in which targets are US-based companies acquired by US or foreign buyers. We define divestitures as the sale of a portion of a company (not a whole entity) by a US-based seller. We have based our findings on data provided by industry-recognized sources. Specifically, values and volumes used throughout this report are based on announcement date for transactions, as provided by Thomson Reuters and S&P Global Market Intelligence, as of December 31, 2019, and supplemented by additional independent research.
Information related to previous periods is updated periodically based on new data collected by Thomson Reuters and S&P Global Market Intelligence for deals closed during previous periods but not reflected in previous data sets. Deal information was sourced from Thomson Reuters and S&P Global Market Intelligence and includes deals for which targets fall into one of the AWM industry sub-sectors: traditional asset management, alternative asset management, wealth management, or administration and other (such as fund administrators). Certain adjustments have been made to the information to account for transactions which our data sources classify as financial services but which we assign to technology and other sectors, or vice versa.
Asset and Wealth Management Deals Leader, PwC US
Financial Services Deals Leader, PwC US