BNP Paribas-AXA IM, Janus Henderson deals rev up drive for alts dominance
A flurry of deals since the start of this year indicates that global asset managers are betting big on private markets as they bulk up via mergers and acquisitions (M&A).
That trend in only expected to pick up pace, according to industry experts.
Janus Henderson Investors (JHI) earlier this week announced it is buying US-based private credit manager Victory Park Capital, as it seeks to expand its alternatives footprint.
The deal follows the asset manager’s acquisition of National Bank of Kuwait's alternative investments business in May.
JHI’s announcement came days after European giants AXA and BNP Paribas said they are negotiating an asset management merger -- a move that would create an investment powerhouse with $1.5 trillion assets under management (AUM), only second to Amundi in Europe.
More deals could follow.
Janus Henderson
Investors
“We will see more acquisitions among managers over the next 12 months. We could also see more partnerships, especially in the private markets space,” Andrew Hendry, Asia CEO of Janus Henderson Investors, told AsianInvestor.
“We haven’t finished our journey also and we continue to look for more attractive deals, to help us plug the gaps in our product and service offerings.”
GETTING BUSY
The JHI-Victory Park Capital and BNP-AXA announcements are the latest in a growing number of deals within asset management this year.
BlackRock in January announced the $12.5 trillion acquisition of Global Infrastructure Partners and a few days later, General Atlantic acquired UK-based infrastructure manager Actis.
There has also been a strong pick-up in partnerships between long-only managers and private market players in recent months, AsianInvestor has reported.
Acquisitions can help a manager accelerate AUM growth, expand geographic footprints and increase the number of investment strategies on their platforms.
Victory Park Capital, for instance, gains access to Janus Henderson's distribution networks in Asia, where it currently has no staff or operations.
In turn, JHI will be able to offer private credit offerings, demand for which has soared among Asian institutional investors.
“Asian demand for private credit is still about US credit,” said Hendry.
“That’s what we wanted to offer our clients in markets such as Korea [who were asking for private credit].
That’s what our M&A team looked for and they delivered. US private credit is the fastest growing asset class in demand. Almost every institutional investor we talk to, they just want more private credit,” Hendry added.
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ADAPTING TO CHANGES
The relentless rise of private markets, increasing technology use, compressing fees for active management and growing popularity of exchange-traded funds (ETFs) are just some of the mega forces pushing the asset management industry to adapt and compete.
Adding to these pressures is that public equities are shrinking at their fastest pace in at least 25 years, according to a recent JP Morgan study, making the ability to generate alpha even more challenging for traditional long-only managers.
KPMG
“The fee compression in traditional asset management is very high – and it is forcing entities to scale up to be profitable," Andrew Thompson, partner and head of private equity for KPMG Asia Pacific, told AsianInvestor.
"If you are going to be in public markets, you have to be very efficient through maximum scale or use of technology."
Private markets, in contrast, have different fee dynamics, with limited fee compression.
“Whether you are an institutional investor or a professionally accredited investor, there is no difference in fees because of the nature of the deals in these markets,” said JHI’s Hendry.
“There is only so much capacity for dealmaking that managers will have in private markets – you could call it a ‘scarce good’ market.
"The money is also locked up for a longer period of time – from three years to up to 12 years, compared to mutual fund investments which investors can redeem on a daily basis.”
The urgency to revamp business models is spurring deal activity, Miranda Zhao, head of M&A for Asia Pacific at Natixis CIB, told AsianInvestor.
“Key industry themes include vertical diversification – such as pursuing multi-class alternative platforms, traditional long-only platforms diversifying into private markets, the rise of private credit and geographic expansion for new growth areas, wealth management distribution channels, via acquisition or partnership transactions," Zhao said.
BRINGING FOCUS TO THE BUSINESS
The BNP Paribas-AXA IM deal, meanwhile, follows an ongoing trend of some insurance companies looking to separate business lines and improve entity valuations.
Natixis CIB
One example is Standard Life Aberdeen (now abrdn) exiting the life insurance business in 2018 after Standard Life merged with Aberdeen in a $14 billion deal.
Another example is the UK’s Aviva, which let go of its insurance business in most of Asia, barring China and India, to focus on asset management.
The asset management arms of insurers have specialised investment skills, including actuarial skills, to support insurance investments.
The assets are also long-term and not volatile because insurer investments tend to have horizons of 10-30 years to match their long-term liabilities.
That combination can be tempting for traditional asset managers looking for more sticky assets, scale up and diversify their offerings.
The drive to gain alternatives expertise is evident here too.
“AXA IM's expertise and significant assets in the alternatives space must have been a key selling point for BNP Paribas,” an August 14 Morningstar note said.
“AXA IM also benefits from a proven fixed-income platform, with recognised expertise in high-yield bonds, which complements BNP Paribas AM’s capabilities,” the note added.
Nevertheless, integration will also involve rationalising fund ranges between both entities and many strategies will have to be closed or merged, Morningstar said.
Instability within investment teams could also occur and talent attraction and retention may prove challenging “as negotiations over the combined entity’s set of expertise and key roles take place in the coming months, it said.
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SPRING IS HERE
Overall, the sentiment for deal-making, either via partnerships or outright acquisitions, is starting to feel buoyant, after bouts of cost-cutting throughout 2023 and earlier this year.
“This year, despite all the many negative things that are happening in various regions, the markets are up,” said JHI’s Hendry.
“That improves the AUM for a lot of asset managers and suddenly, everyone feels a little bit richer. That brings on confidence and as an industry, there is a desire to do more deals. There’s a mindset of ‘Let’s do it quickly before things get even more expensive’.”
He also expects that notwithstanding any sudden shocks, the rest of this year and 2025 should bode well for asset managers.
KPMG’s Thompson shares a similar sentiment: “If we get a stable global political environment, and it does seem like inflation -- and interest rates – are coming down, it will lead to an increase in confidence. It’s not quite summer but we are definitely seeing some very good signs of [an M&A] spring.”