Just a heads-up if you are a struggling bank that owns a mutual fund family — Bruce Crockett may have it in his sights.
Crockett is the chairman of Invesco Ltd.'s Aim Funds, which in October announced a deal with Morgan Stanley that would more than double the size of Aim's business. In an interview last week, Crockett could barely contain his zeal for other tempting acquisition opportunities presented by the Troubled Asset Relief Program and general distress in the banking industry.
"I look at all of the Tarp babies and I see a lot of banks that are going to have to liquefy certain assets," Crockett said. "I look at regional banks and smaller money market providers and see a lot of potential acquisitions. I think we are on the cusp of some significant consolidation in the fund industry."
Analysts predict a small group of "megafund families" will emerge in the next couple of years as financial services companies are forced to focus their capital on core businesses. BlackRock this month completed its $13.5 billion acquisition of Barclays Global Investors. The combined firm manages roughly $3.2 trillion of assets for institutional and retail investors.
Michael White, who heads the research firm Michael White Associates, said the consolidation trend has been under way in the fund industry for a couple of years. He said large firms will continue to get larger by acquiring bank-owned fund families.
"Regional and community banks will be looking to sell their fund units," White said. "They just lack the bulk to make owning a fund family worth their while. The larger banks may hold on to what they have if what they have is profitable."
White said the percentage of bank holding companies with proprietary mutual fund and annuity assets has declined steadily since 2001, from 16.44% to 6.81%.
Invesco announced in October that it would pay $1.5 billion to buy the Van Kampen Funds from Morgan Stanley. Crockett said the fund lineup at Aim, which had $157 billion of assets under management on Nov. 30, would grow to 240 funds from 100 with the addition of the Van Kampen Funds.
By the time fund integrations are completed in 2011, Aim would have roughly 130 mutual funds, Crockett said. "The pure asset management players, like the Invescos and the BlackRocks of the world, are going to go out and acquire and get even bigger," he said. "The era of the trillion-dollar investment managers is upon us. We are going to see more deals and see more assets moving to a shrinking group of strong hands."
Crockett would not pinpoint when Aim's next deal would occur. He said he would love it if 2010 could be "a year of integration" for the company, as it assimilates its existing funds with the Van Kampen fund family, but it has to be opportunistic, he said.
"Timing is everything," he said. "Look at what people are paying for assets under management right now as compared to a couple years ago. I wouldn't call it a fire sale, but it is certainly bargain-basement prices."
He added, "We may have to do a deal sooner rather than later."
Geoffrey Bobroff of Bobroff Consulting in East Greenwich, R.I., said three or four years ago, Aim was a "fund family on the brink," but now it is taking advantage of the opportunities in the market.
"They were dealing with their own issues surrounding some of their funds, but they have turned the corner," he said. "Asset growth had been anemic and they suffered the consequences of being a growth company."
The Aim fund family has expanded rapidly in the past eight years. In 2001 it had 40 funds and focused predominantly on growth investing. Over the past nine years it has added funds by "slicing and dicing" and creating more niche products, Crockett said.
Bobroff said the Van Kampen deal would give Aim a distribution system to build, but "it is hard to say where they will go from here."
"The biggest challenge is the ability to integrate," he said. "There are a lot of cultural challenges associated with buying a fund family. Aim is picking up investment teams and sales staff and there will be challenges."
In addition to the Van Kampen acquisition, Aim has also added assets organically. Crockett said it has more four-star and five-star Morningstar-rated funds (25-plus) "than at any time in the company's history."
"Our performance has been remarkably good considering we are coming out of a turbulent environment," he said. "It is really exciting to see positive cash flow in spite of everything."
The Van Kampen deal, which is to close next quarter or in the second quarter, also is expected to increase Aim's distribution, Crockett said, because Morgan Stanley Smith Barney and Edward Jones were the preferred vendors for the Van Kampen funds. "Ultimately, Morgan Stanley found out that their forte was not in running retail funds," he said. "I think, over time, a lot of people are discovering that stuffing your product down the throats of clients isn't the way to go. Offering proprietary products is just not seen as good form anymore."
Crockett said Aim will look to add funds, including some international funds in emerging markets, and continue to scout buyout prospects.
