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Asset Management Industry – a Next Step Towards Further Consolidation

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Asset management industry – A next step towards further consolidation Financial Advisory, November 2020 The asset management industry continuous to be an attractive market in terms of revenue growth and profitability, however the industry is facing challenges from different angles There is substantial pressure on profitability and active players struggle to outperform passive product offerings including a need for scale to operate efficiently not the least because of compliance and regulatory requirements. In response many asset management companies have been changing strategies to expand scale trusting that size will result in a competitive advantage © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 2 1. Introduction Total net asset increase of word wide regulated open-end funds (EUR trillion) The asset management industry has shown substantial 60 growth in net assets driven by driven by a search for yield 45 9.5% c. EUR 49 on investments trillion 30 year-end 15 in 2019 For the period 2010 to 2019, the asset management industry* has 0 shown substantial growth in net assets** driven by low term yields on 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 government bonds, mainly in the EU zone, and driven by a search for US and EU 10 year government bonds yield on investments. 4.0% We expect for the near future a further increase in growth for the US investment management industry driven by i) an increase in appetite 3.0% EU for long term personal savings and ii) attracting new clients by offering 2.0% new investments – PE investments and more cross border activities. 1.0% Due to fee pressure from increased regulatory costs and investments to improve customer experience, together with a scattered investment manager landscape in the Netherlands, we expect a further -1.0% Jan 2010 Aug 2020 consolidation in the market of investment managers. MSCI index (Jan 2010 as starting point) 250 200 150 100 50 * In this document asset management industry includes both pure play asset management companies as well as wealth investment management companies. 0 Jan 2010 Aug 2020 ** Measured based on regulated funds (bonds, money-market, mixed and equity funds) Source: ICI factbook 2020, Capital IQ © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 3 1. Introduction We have performed an analysis to provide industry insights of the investment management industry and to share our view for the foreseeable future Other sections in this document We have performed an analysis to provide Outlook industry insights of the global investment 6 management industry in terms of some of the key industry’s financial metrices. As we experience an increase in M&A The Netherlands transactions over the last few years we focus 5 on some integration pitfalls followed by valuation considerations for asset management companies globally. Valuation Next, we provide a condensed overview of 4 Considerations the asset management industry in the Netherlands followed by our expected outlook for the foreseeable future given current industry challenges and trends. M&A and synergy 3 realisation 2 Industry insights © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 4 Asset Managers peer group’s AUM 2019 (€bn) 2. Industry insights BlackRock, Inc. 6,621 Amundi SA 1,419 The top 10 listed global asset management companies Invesco Ltd. 1,093 T. Rowe Price Group, Inc. 1,075 account for more than 90% of total AUM of our peer Affiliated Managers Group, Inc. 644 Franklin Resources, Inc. 635 Top-10 asset managers group Schroders plc 590 Federated Hermes, Inc. 513 Janus Henderson Group plc 334 Anima Holding S.p.A. 186 For years, the asset management industry has been an attractive BrightSphere Investment Group Inc. 182 industry given the high margins, high historical growth and capital GAM Holding AG 122 Artisan Partners Asset Management Inc. 108 requirements which are in general less tight compared to banks. Man Group plc 105 Virtus Investment Partners, Inc. 97 Industry concentration is a key characteristic of the asset management CI Financial Corp 91 industry. Globally, the ten largest listed asset management companies Ashmore Group PLC 74 Cohen & Steers, Inc. 64 account for over 90% of total assets under management. Pendal Group Limited 62 Mid-size asset managers Magellan Financial Group Limited 60 We have analysed the development of key financials of publicly listed Jupiter Fund Management Plc 51 Pzena Investment Management, Inc 37 asset management companies* to assess if there are any differences in GAMCO Investors, Inc. 33 terms of profitability in relation to size. Liontrust Asset Management PLC 18 Perpetual Limited 17 Manning & Napier, Inc. 17 Based on reported 2019 asset under management (“AUM”) we divided Impax Asset Management Group plc 17 our sample of 40 companies in three groups: Brooks Macdonald Group plc 15 Polar Capital Holdings plc 14 Value Partners Group Limited 13 • Top 10 asset management companies Premier Miton Group plc 7 Small size asset managers City of London Investment Group PLC 5 • Mid-size asset management companies Hennessy Advisors, Inc. 4 Australian Ethical Investment Ltd. 2 • Small size asset management companies U.S. Global Investors, Inc. 2 Easton Investments Limited 1 JS Investments Limited 0 K2 Asset Management Holdings Ltd 0 * Peer group companies selected based on publicly owned financial service providers of which Shriram Asset Management Company Limited 0 the majority of the activities consist of asset management. 0 200 400 600 1,200 1,400 6,800 © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 5 2. Industry insights The smallest listed asset management companies are mainly located in Europe and the Asia-Pacific region The US and Canada show the highest concentration of the top-10 asset Asia is one such market for asset management companies as major management companies followed by Europe. None of the top-10 largest demographic shifts are taking place in the region. This region accounts asset management companies is located in the Asia-Pacific region. for c. 62% of the world’s millennials as well as 63% of the world’s aging workforce. Investment managers are aiming to provide investment Asset management companies in Asia-Pacific are mainly present in the solutions to both of these groups. According to earlier analysis*, this small size bucket (c.26%). Although the Asia-Pacific asset management opportunity may result in EUR 2.3 trillion AUM in 2020. industry is growing, the firms are still comparatively small. Finding new markets and investors for existing products is key for * Deloitte, 2020 investment management outlook, 2019 profitable growth for asset management companies. Top-10 Asset managers 2019 Mid-size asset managers 2019 Small size asset managers 2019 US and Canada 11.5% 7.7% Europe 19.3% 25.7% Asia / Pacific Top-10 >€15bn AUM <€15bn AUM 33.9% (excl. top10) 54.6% 80.7% 66.6% © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 6 2. Industry insights Investment management has shown high growth in terms of AUM, revenues and profit. Profitability margins are decreasing from 2015 to 2019, due to greater price transparency and increasing cost awareness among clients Assets under management (€bn) Revenues (€bn) Costs (€bn) Profit margin (%) 3.2% 10.0% 10.8% 4.5% 2.0% -6.0% 32 34 30 30 30 14.5% 9.5% 29 29 29 25 26 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 ’10 ’11 ’12 ’13 ’14 ’15 ’16 ’17 ’18 ’19 Total AUM increased with an annual Total revenues increased with a Costs increased by a CAGR of 4.5% EBIT margins remain behind as costs growth rate of 14.5% between 2010 CAGR* of 10.8% for the period for the period 2015-2019. It shows a are rising at a higher pace than and 2014 and with 10.0% for the 2010 to 2014 and with 3.2% for the faster increase than revenues for the revenues. Changes to current period 2015 - 2019. This growth is period 2015 - 2019. On a relative same period indicating lower profit operating models are necessary in the result of net inflows in funds, as basis, increase in revenues is margins for asset managers. The main order to stay profitable in the future. well as a favorable market lagging AUM growth implying a driver of cost increases relates to environment. pressure on fees. regulatory costs and investments to Note: Above graphs are based on the peer group of * Compound annual growth rate improve customer experience. listed Asset Managers presented on p.5 © 2020 Deloitte The Netherlands Investment management – A next step towards further consolidation 7 2. Industry insights Revenue growth remains behind AUM growth in all AUM CAGR 2015 - 2019 Revenues CAGR 2015 - 2019 regions, indicating that fees are under pressure 12.5% 9.4% 7.8% Even though the US / Canada dominate the asset management industry, 6.9% there has been significant growth in AUM in Asia-Pacific and Europe in 3.7% the past five years. Europe has been the strongest contributor in terms of AUM growth, averaging 12.5% per year since 2015. 2.0% However, revenue growth remained behind AUM growth rates in all US / Canada Europe Asia / Pacific US / Canada Europe Asia / Pacific * regions, indicating that fund fees are under pressure. Both in the US / Canada and Europe costs exceed revenue growth rates during the past five years, showing on average declining margins in these mature markets. Costs CAGR 2015 - 2019 Improvement (decline) of absolute EBIT margin 2015 vs 2019 In US / Canada and Europe profitability is under pressure resulting in a decline in the development of EBIT-margins for the period 2015 - 2019.
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