Consolidation in money management is expected to pick up this year, after a long dry spell, as banks and insurers unload wealth management subsidiaries to raise cash.
After Citigroup inspired a generation of financial services companies to build wealth management supermarkets, the credit crunch will see pure-play asset managers reassert themselves, according to a report Wednesday from Jefferies Putnam Lovell, an arm of investment bank Jefferies & Co. that focuses on this sector.
''Pure-play asset managers, acting alone and in concert with private equity firms, will increasingly take advantage of this unique situation as commercial banks and insurance companies shed non-core investment businesses to raise capital,'' said Aaron Dorr, managing director at Jefferies Putnam Lovell. ''In asset servicing, we see a wave of consolidation looming, as undercapitalized companies look to divest operations, while small- and mid-sized independents seek shelter within better-capitalized partners."
This is the scenario that led CI Financial, a dominant Canadian fund manager, to raise money recently in anticipation of takeover opportunities.
Valuations on asset managers are expected to fall, as distressed sellers are forced to deal with a relatively short list of well-capitalized buyers, according to Jefferies Putnam Lovell.
"Asset swaps, joint ventures and complex earnout provisions will become more commonplace," said a report from the New York-based investment bank. " Stock will be used more frequently as acquisition currency."
The investment bank also predicts that traditional, long-only fund managers will pick up assets at the expense of alternative asset plays, a reflection of both performance concerns and the recent scandals in the hedge fund world.