Alternative boutiques likely to become takeover targets

Alternative boutiques likely to become takeover targets

Alternative investment boutiques are likely to be the target of growing mergers and acquisitions activity, predict corporate finance experts.

Active fund houses are under increasing pressure to deliver outperformance due to the low-cost returns available from passive vehicles and buying in expertise in niche asset classes is seen as one way to address this threat.

Peter Gray, partner and head of financial services at Cavendish, a mergers and acquisitions firm, said: “There will undoubtedly be more growth in alternative asset managers and the amount of money they manage.

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“The rewards of the alternative assets are obviously there.”

He added boutiques were also keen to be bought by larger asset managers as it broadened the size of their client base.

Robert Mellor, financial services tax leader at PricewaterhouseCoopers, noted groups had shifted their focus from the principal asset classes to a broader product mix.

“Asset managers are looking to offer more products, building out their capabilities by offering other investments beyond their previously narrow focus,” he said.

“They are hunting for other businesses that will complement their own strategies.”

Since 2005, the alternative assets market has grown faster than traditional asset classes.

Alternatives have seen an average annual growth rate of 10.7 per cent, almost double that of traditional asset classes, which have increased 5.4 per cent per annum, according to data from a recent McKinsey & Company report.

This continued uptick in alternatives offers “one of the most significant growth opportunities for asset managers”, the report states. The sector is “continually evolving”, adds the report, and there is “ample opportunity for new players to emerge”.

Larger asset managers have noted this and are having “strategic discussions” about how to get exposure to alternatives, according to a financial services specialist who wanted to remain anonymous.

The specialist added that expertise in the infrastructure sector was particularly appealing to these firms as it “has shown itself to be resilient and the financial profile is quite attractive”.

There is also the chance that UK-based alternative specialists could be snapped up by overseas players seeking a presence in the domestic market.

Cavendish’s Mr Gray said UK alternative fund managers had a “good reputation” and the country’s regulatory environment was “well respected”.

Mr Mellor agreed that overseas buyers could benefit through being able to access a new base of investors.

Last week, Dexion Capital Holdings, a London and Guernsey-based alternatives business, was sold to Australian company Fidante Partners.

And earlier this year, Swiss bank Vontobel acquired 60 per cent of specialist fixed income boutique TwentyFour Asset Management.

Alternative way to access alternatives

Full-on mergers and acquisitions are not the only way for asset managers to get access to these alternative investment boutiques, according to Robert Mellor, financial services tax leader at PricewaterhouseCoopers.

He said asset managers could also consider taking a majority stake in a smaller rival.