With the acquisition of Axa Investment Managers by the French banking group BNP Paribas, the European asset management sector strengthens its position against “the Americans”. However, more is needed to halt the shift of managed assets from Europe to the United States.
Is the trend towards consolidation in asset management good news? The answer depends on the perspective: dealmakers and shareholders of fund houses can benefit greatly from mergers and acquisitions, while clients are not always thrilled. In the long term, they may enjoy lower costs, but in the short term, the acquisition of an asset manager often causes disruption for investors.
This is evident in the recent purchase of the asset management division of insurer Axa by BNP Paribas, completed just before the end of the year. The French banking group is merging Axa IM – with 860 billion euro in assets under management – with its own asset manager, BNP Asset Management, which manages 591 billion euro. Together, they will enter the European top five, with nearly 1.5 trillion euro under management, alongside industry leaders Amundi, Allianz, and UBS.
Analysts point out that this could be “good news” for the European asset management sector. Costs have risen significantly in recent years due to salaries, compliance requirements, IT, and research into sustainable investing, but consolidation can relatively reduce these costs. Additionally, “internal” collaboration is deemed necessary to maintain the European character of the asset management sector. In major countries like France and Germany, institutional investors strongly favour products from “national champions”, and American firms are not always equally popular.
Enhanced monitoring
At the same time, such acquisitions can cause concern among investors, says Freddy van Mulligen, Head of External Manager Selection and Monitoring (Liquid) at Achmea Investment Management. “When such an acquisition is announced, we immediately arrange a call with the acquiring party. We want to know what will happen to the products, the product lines, and the teams. We then inform our clients about these developments. The involved managers are subject to enhanced monitoring for several years.”
Thus, a merger or acquisition does not usually lead to an immediate reassessment of the investment case. “Organisation is one of the six pillars in our selection and monitoring process, and the ownership and stability of that organisation are important, but they don’t usually trigger a red flag,” Van Mulligen explained. “However, we do expect clarity within a certain timeframe – often within a year. Yet, it can happen that after two or three years – for example, following a lock-up period – significant team changes occur, which may then lead to a reassessment.”
The key concern is that the characteristics of the investment strategy remain intact. “Consolidation is not always beneficial,” Van Mulligen said. “In categories like global equities, I see the rationale, but in areas like smallcaps or high yield, you want specific access to smaller issues. In those cases, constant scaling up is undesirable.”
Giants in passive investing
However, scale is a determining factor in quantitative strategies and especially in passive investing, which is gaining an increasingly larger market share. In these segments, the market dominance of American firms continues to grow. According to data from Lestrade, a due diligence firm for the institutional market, the market share of European fund houses declined over the past five years from nearly 30 percent to 25 percent, while the share of American firms rose from 58 percent to over 65 percent. This was partly due to acquisitions (such as NN IP by Goldman Sachs) and the increasing preference of major European investors for giants in passive investing like BlackRock and Vanguard.
Matthias Pezij, Managing Partner at Lestrade, noted, “These organisations, operating exclusively as fund houses, are becoming increasingly efficient and can leverage their massive scale to charge lower fees. In Europe, only Amundi can compete with their operational margins.”
Development of AUM for asset managers, 2019–2024 (in billion USD)
Lestrade compiled financial data into an index covering six American asset managers (BlackRock, JP Morgan, Goldman Sachs, Morgan Stanley, Invesco, and T. Rowe Price), three British houses (LGIM, Schroders, and abrdn), and six European managers (UBS, DWS, Amundi, Allianz, Axa, and Robeco). This revealed that European houses are not performing poorly in terms of operational margins. However, according to Pezij (photo), this average is skewed by Amundi’s strong performance: “Although it is largely owned by Crédit Agricole, Amundi operates independently as a specialised asset manager.”
Operational margins of asset managers, 2019–2024
Asset managers that are part of an insurance company tend to fare worse, Pezij observes. Axa IM, with a margin of around 30 percent, was no high performer either. “Several insurers have indicated that asset management is no longer a core activity for them. These are the entities currently attracting market interest.”
Average operational margins of asset managers, 2019–2024
The “market” in this context largely consists of banks and banking groups. Many major European banks are well-capitalised. In recent years, they primarily used this capital for share buybacks, but there is now growing recognition that their business model needs revision. Diversifying revenue streams is part of this strategy, and a steady flow of fees from asset management is particularly appealing.
“Investors rarely benefit from consolidation”
“Asset managers often promise lower costs and better fund performance following mergers and acquisitions. In reality, investors rarely benefit. These promises are seldom fulfilled,” said Jeffrey Schumacher, Director of Manager Research EMEA at Morningstar. From the investor’s perspective, Schumacher sees no inherent benefit to consolidation in the fund industry. “I understand that scale is good for a manager’s profitability, which in turn supports the stability of the organisation. But investors rarely reap the rewards.”
On the contrary, there are often adverse effects, particularly when it comes to overlapping strategies. This overlap has significant implications for teams. “The uncertainty around this cannot simply be ignored. Asset managers always claim it’s business as usual during a transition, but I doubt that. Teams certainly do not welcome such distractions.”
Merging funds is also not always advantageous, Schumacher added. “Some strategies are less effective when a fund becomes larger, such as small-cap or emerging market debt. In these areas, increasing assets from 2 billion to 6 billion can quickly lead to liquidity issues.”
Notably, Morningstar does not immediately adjust its ratings after an announced merger or acquisition. “We act only on what actually happens, not on potential outcomes. So in the case of Axa IM and BNP Paribas, the agreement does not immediately lead to changes. Both managers are currently rated Average, and that remains unchanged for now.”
Would this trend towards larger financial conglomerates in Europe stem the growth of the American market share in asset management? Pezij remains sceptical. “Operational efficiency is key,” he explained. “Take BlackRock, for instance; it is the benchmark. They focus solely on asset management and leverage their enormous scale to continuously invest in implementing information technology, becoming ever more efficient. Asset managers that are part of a group and not considered a core activity have far fewer resources for investment. It’s likely their lag behind ‘exclusive’ fund houses will only increase.”