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Asset and wealth management: Deals 2022 midyear outlook

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First half of 2022 marks another banner period for AWM deals

  • While deal markets in the first half of 2022 have cooled slightly relative to the scorching hot activity seen in 2021, AWM deal volume continued at a strong pace in the first half of 2022, with 109 announced deals in YTD May 15, 2022, up 11% as compared to the same period in 2021. That said, we did see deal momentum slow in the second quarter on the back of increased global macroeconomic and geopolitical uncertainty, which could be a harbinger for activity in the second half of the year.
  • Notable deals announced during the first half of the year include UBS’ acquisition of robo-advisor Wealthfront ($1.4 billion), AllianceBernstein’s acquisition of private credit manager CarVal Investors ($1.4 billion) and Carlyle’s acquisition of a portfolio of collateralized loan obligations (CLOs) from CBAM ($787 million).
  • The rising interest rate environment and extreme volatility in equity markets present challenges, but at the same time may create M&A opportunities for AWM firms.
  • Alternatives — and private credit in particular — continue to be an attractive growth avenue for AWM firms looking to diversify outside of traditional asset classes.
  • The landscape of wealth management is changing, and firms searching for technology to digitize their wealth management offerings could power future deal activity.

Asset & wealth management sector outlook

Impact of a rising rate environment

Investment activity within private markets continues to boom. With alts managers sitting on over $2.5T+ of dry powder and continuing to enjoy premium valuations and interest rates on a precipitous rise for the first time in several years, we expect private credit managers in particular will come to the forefront as attractive targets not only for traditional asset managers looking to penetrate the private markets sector, but also for other members of the private markets ecosystem, such as private equity (PE) firms. 

For traditional asset managers, expansion into private credit presents a desirable fixed income product offering that is becoming especially important as equity markets experience extreme volatility. We’ve also seen some traditionals firms with an existing presence in credit look to further expand their capabilities and geographic footprint. A prime example is Franklin Templeton, which already operates Benefit Street Partners, a credit manager with about $30bn in assets under management (AUM), announcing in June the acquisition of Alcentra, BNY Mellon’s European credit arm. The acquisition will approximately double Benefit Street’s AUM and expand its European presence.

On the flip side, private equity firms are no strangers to private credit. Leveraged buyouts have been a significant contributor to the rapid expansion in the private credit markets in recent years and private credit products (e.g., direct lending, CLOs) provide the type of yields PEs demand without the equity risk. We expect private equity acquisitions of credit managers to be on a smaller scale compared to those of traditional asset managers. However, don’t be surprised to see historically pure-play private equity firms evaluating transformative platform investments in private credit, especially as macroeconomic cycles begin to turn.

The recently proposed Securities and Exchange Commission (SEC) rules which tighten disclosures around SPAC-led IPOs, coupled with investigations initiated into several recent SPAC deals and the poor post-listing performance of SPAC-led deals  have significantly narrowed the aperture for these. As a result, we have seen several announced IPOs of late stage AWM players stalling or unwinding - these include the likes of eToro, Apex Clearing and Acorns.


Key deal drivers

Wealth management deals

Wealth management continues to be the primary driver of deal volume within the AWM sector, with 224 deals announced in the last 12 months. In particular, aggregators and consolidators of registered investment advisers (RIAs) continue to drive deals.

However, we believe the landscape of wealth management advice is changing, which could spur a shift in the impetus for deals in the subsector. Larger wealth managers continue to look for new and improved technology to digitize their wealth management offerings and deliver remote human advice, particularly as their client base trends younger toward millennials and Generation Z.

As the meme stock boom of 2021 demonstrated, younger demographics seemingly prefer to make their own investment decisions, informed by the use of data and technology providers, rather than through a traditional “brick and mortar” investment advisor. UBS’ announced acquisition of Wealthfront for $1.4 billion is a prime example of this shift. Look for wealthtech to be a key driver of wealth management deal activity in the second half of the year.

Digital advice providers present several evident synergies with workplace investing, retirement and recordkeeping players with established books of business and regular flows from rollovers and vesting activity. With valuations for new funding rounds among growth investment players coming down from the highs they scaled in the fourth quarter of 2022, they could also become interesting targets for mainstream wealth managers and retirement players.

Retirement recordkeeping deals are also likely to be a contributor.  Among the top 15 recordkeepers, seven have announced M&A deals, or significant rebadging and outsourcing deals over the last three years alone. Many of the others have been the subject of speculation around similar consolidation or long-term rebadging deals. Given the inexorable logic of the continuing cost pressures on the business and the long tail of smaller players, we expect further consolidation in this space in the months and years ahead.

Digital assets and crypto deals

Crypto assets are off significantly from the all-time high valuations they reached in November of 2021. Correspondingly, the ecosystem of exchanges, miners, wallet-providers and brokerages supporting crypto assets  — including non-fungible tokens (NFTs) — has seen a very significant correction in valuations. However, recent statements from governments and regulators have provided more comfort to regulated financial institutions in dealing with an asset class that has historically stoked unease and skepticism. As a result, more prominent asset managers and asset servicers are exploring their options in the crypto space.

Fidelity recently announced that it would soon offer bitcoin as a 401(k) investment option saying bitcoin represents a long-term investment on future blockchain technology. Asset managers can no longer ignore this segment in the market to remain competitive and we expect the maturing of the crypto space to occur through consolidation of late-stage or mature crypto ecosystem players via acquisitions by larger, traditional asset managers.

In addition to improved comfort from a regulatory perspective, the recent erosion in valuations should also be a contributory factor - listed player, Coinbase is down to a sixth of the valuation it reached in the fourth quarter of 2021, and the Galaxy Digital-Bitgo deal ($1.2 billion in cash and stock when it was announced in May 2021) is still pending. This moderation in valuations should also serve to make it easier for larger, cash-rich regulated players (exchanges, brokerages, asset managers) to explore M&A opportunities in the crypto space. They are most likely to be interested in crypto players with weaker balance sheets, especially players with unique intellectual property or an established position catering to specific customer segments.

SEC rule-making

Another development to watch more closely in the months ahead is the SEC’s proposed rule-making to drive changes in retail order routing and payments for order flow, which currently underwrites significant economics for retail brokerage players such as Robinhood and Charles Schwab, market-makers such as Citadel and Virtu and the retail brokerage offerings of SoFi, Block, Ally, etc. Robinhood’s introduction of commission-free trading was a significant contributor to retail brokerage consolidation over the last few years: Charles Schwab-TD Ameritrade, Morgan Stanley-E*TRADE, etc.

The SEC plan is likely to require exchanges and other firms to compete more directly to execute trades from retail investors in order to reduce potential conflicts of interest and concentration of volumes among a few market makers. If it goes forward as planned, one can expect significant disruption to the business models and potential consolidation among several venture/growth equity financed players which have built up significant customer bases among new investors, among market makers, and some of the clearing firms supporting this ecosystem. A move towards greater internalization of orders (i.e. brokerage firms fulfilling retail orders from their own inventory) would be one very likely consequence, and consolidation would facilitate both self-clearing and greater order volumes.

“Larger deals could be on the horizon in 2022, as AWM firms search for ways to add product and distribution diversity outside of traditional investing.”

— Greg McGahan, US Financial Services Deals Leader and AWM Deals Leader

Contact us

Gregory McGahan

Gregory McGahan

Asset and Wealth Management Deals Leader, PwC US

Arjun Saxena

Arjun Saxena

Principal, Financial Services, Strategy&, PwC US

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