In asset management, big is beautiful — but it is not enough

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Facing stagnant revenues and rising costs, the also-rans of the asset management world are under crushing pressure to team up. The latest example of this megatrend comes courtesy of Italy’s Generali and France’s Natixis, in talks to merge their wealth management arms.

It is not hard to see why the two groups are sniffing each other out. Neither company has a compelling standalone future. 

Generali AM is a minnow in an industry that is increasingly dominated by giants. Even after the acquisition of Conning in the US, it only has about €840bn in assets under management. Slamming it together with Natixis, which has €1.3tn, would create a €2tn-plus manager — among the top five in Europe.

Scale matters because struggling asset managers either have to cut costs, or find new growth products and distribution channels, or both. That is the only way to withstand the industry’s profitability crunch.

Cost-conscious savers are increasingly plumping for cheaper products such as exchange traded funds or even, in a high-rate environment, government bonds. This squeezes the fees that active managers are able to charge. Indeed, since 2010, the average fee has fallen from 26 basis points of assets under management to less than 22, according to Boston Consulting Group. Costs, too, keep rising — not least because distribution networks are expensive to maintain.

All this helps explain why BNP Paribas recently bought Axa IM to create a €1.5tn asset manager. Before entering UniCredit’s sights, Italy’s Banco BPM had launched an offer for smaller asset manager Anima.

But while Generali lacks size, much-larger peer Natixis has troubles of its own. Its reputation took a thwack with H2O, the troubled subsidiary it sold in 2022. In terms of profitability, it punches far below its weight.

Its large exposure to pension assets, which have high fixed regulatory costs, means that it only eked out €540mn of earnings in the first nine months of the year, a tiny sliver of its assets. Contrast this with Generali itself, which managed to churn out about €400mn of net profits on its much smaller asset base. Natixis will also be attracted by Generali’s adjacent insurance business, which provides a valuable source of capital and a ready-made distribution network.

With scale can come strength. But when two weaklings team up, it creates all sorts of potential problems. Governance is one. Generali’s asset management business may be smaller, but it has made no secret of its ambition to grow. It is likely to want some sort of co-control. Defensive tie-ups between two challenged businesses are not always better than going it alone.

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