With investor demand for fixed income expected to remain positive into 2010 and flows into equities showing signs of life, asset management firms are poised for growth, making them attractive targets for acquisitions, according to a new Keefe, Bruyette & Woods Inc. report.
Merger-and-acquisition activity is making a comeback, and KBW said, "the long-term conditions remain ripe for continued M&A activity in the asset management industry." The report cites some of the most recent industry deals, including BlackRock's purchase of Barclays Global Investors for $13.5 billion, which was announced in June 2009 and has since closed, and Invesco's deal for Morgan Stanley's retail asset management business for $1.5 billion, which was announced in October 2009 and is expected to close in the second quarter of 2010.
Stocks of asset managers in general have become relatively cheaper and KBW expects asset managers to expand next year. Traditional asset managers' revenues will increase an average of 10.8% and alternative managers' revenues will grow an average of 22% next year, the report estimates.
Fixed income has been one of the most important areas for Wall Street's comeback this year. Among the high-flying bond funds cited in KBW's report is Merrill Lynch's Global Broad Market Index, which was up 54.5% year to date at Dec. 18.
KBW expects that fixed equity flows will remain positive into early 2010, but that they will pull back from the extraordinary levels of 2009.