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 in December, Crockett could barely contain his enthusiasm for other tempting acquisition opportunities as more banks move to raise capital by shedding noncore business lines.
"I look at the TARP babies" - banks that received cash infusions from the Treasury Department's Troubled Asset Relief Program - "and I see a lot of banks that are going to have to liquefy certain assets," Crockett says. "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 redeploy capital to focus core businesses. BlackRock in December 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, says the consolidation trend has been under way in the fund industry for a couple of years and large firms would continue to get larger by acquiring bank-owned fund families.
"Regional and community banks will be looking to sell their fund units," White says. "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 percent to 6.81 percent by the end of 2009.
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. "The pure asset management players...are going to go out and acquire and get even bigger," Crockett says. "The era of the trillion-dollar investment manager is upon us."
Crockett says he would love it if 2010 could be "a year of integration" for Invesco but recognizes that it has to be opportunistic and take advantage of "bargain-basement" prices. "Look at what people are paying for assets under management right now as compared to a couple years ago," he says.
The Van Kampen deal is expected to increase Aim's distribution, Crockett says, 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."