With competition at a boil, money managers are on the prowl for acquisitions to broaden their appeal, speakers at a trade conference said.
In contrast to other industries, where amassing assets is often the main objective, money managers are hoping to position themselves to attract new customers, speakers said at last week's Investment Management mergers and acquisitions conference in New York.
Acquisitions are being driven by strategic goals such as moving into new markets, said Mary Pat Thornton, principal at Putnam, Lovell & Thornton, at the conference sponsored by International Business Communications.
Companies are turning to acquisitions, Ms. Thornton said, to obtain new distribution channels, expand into related markets, extend product lines, achieve economies of scale, and improve products and service.
Charles Schwab is among the companies that have pursued such strategic deals. Schwab bought TrustMark Inc. and Hampton Pension Services Inc. in 1995 to build a 401(k) business.
Although mergers and acquisitions are common, speakers said, the money management industry does not face the same kind of consolidation as the banking industry.
"I think we're on the path to consolidation, but consolidation depends on how you look at it," said Geoffrey H. Bobroff, president of Bobroff Consulting Inc., East Greenwich, R.I.
Because 17 of the top 30 companies were involved in mergers from December 1991 through June 1996, Mr. Bobroff said, some observers might say the industry did consolidate during that time .
But, he pointed out, the percentage of managed assets controlled by the top 30 money managers did not change.
Mergers and acquisitions in money management are not new, Ms. Thornton said, but the names have changed.
"A few years ago, acquisitions were by players getting into asset management," Ms. Thornton said. "The last two to three years have seen acquisition of assets under management by those already in asset management."
She said banks were buying into the business for a while but now are concentrating on consolidating their own business.
As money management companies struggle to keep up with their competition, speakers said, a new form of consolidation is likely: consolidation of talent.
Mr. Bobroff said he expects to see mutual-fund companies raiding one another's staffs to tap the huge amount of money being poured into mutual funds.
Many companies now advertise a fund's performance as well as the fund manager's track record, Mr. Bobroff noted. This advertising push, coupled with the recent Securities and Exchange Commission ruling that lets fund managers take their track records with them when switching companies, will spark a wave of "lift-outs" of fund managers, rather than acquisitions of funds, he said.
"The cost of retaining investment professionals has created 'bonus babies,' like in the sports world," Mr. Bobroff said.