European update

The asset management industry has continued to recover strongly from the impact of the pandemic with global growth in assets of 11% in 2020 to end that year at $103 trillion¹. In Europe, growth represented a very respectable 10%. Further growth can be expected this year but asset managers are having to deal with a range of challenges, not least flat profitability due to fee pressure and the cost of adopting new technologies and the ever present regulatory burden. These pressures are driving a wave of M&A activity in the sector, a subject to which I return to below. We are also experiencing an era of regulatory reform and change in the post Brexit environment – some of these changes are outlined below in Simon Lovegrove’s regular EU/UK regulatory roundup.

For example, last month ESMA issued amendments to the Sustainable Finance Disclosure Regulation product disclosure requirements to take account of the classifications from the EU taxonomy for sustainable finance. Some asset managers are worried about their ability to comply with these new disclosure requirements. Concerns around inconsistencies of categorisation and the risks of alleged “greenwashing” are front of mind.

The recent press reports that Abrdn is holding talks with JC Flowers, the principal shareholder in Interactive Investor to acquire Interactive Investor, the UK’s second-largest fund supermarket, for £1.5bn is just one of a number of recent deals in the sector. In October, it was announced that Schroders was to acquire the solutions business of River & Mercantile Group for approximately £230 million whilst Dutch manager, Cardano, agreed to buy sustainable asset manager Actiam from insurer, Athora Netherlands. Actiam manages approximately €21.5 billion of assets offering sustainable investment strategies in insurers, banks, pensions funds and other financial institutions. It has also been reported that French manager, Arbevel, is in discussions to acquire the fund business of Actis.

In September it was announced that Patrizia, the German real estate manager, had agreed to acquire Whitelm Capital, an infrastructure fund specialist, from Fidante Partners (part of the Challenger group) and staff. DWS also agreed to sell 70% of digital fund management platform, IKS, to private equity firm, BlackFin Capital Partners. Increased deal activity is supported by research prepared by Retiniv which suggests that sub-$1billion deals in the asset management sector are at their highest level since 2007. We can probably expect these trends to continue as managers look to achieve synergies, diversify into new products and asset classes and achieve better distribution channels.

As mentioned above, fundraising activity remains strong across the private fund and listed fund sectors (both new issues and secondary raises). In the listed space we have seen a raft of announcements for new investment company IPOs, including Alinda Capital Infrastructure Investments PLC, Foresight Sustainable Forestry Company Plc, Atrato Onsite Energy plc, Pantheon Infrastructure PLC, Harmony Energy Income Trust and Pertershill Partners. A significant number of these new funds are targeting investment in renewables and related infrastructure. By far the largest deal was Petershill which came to the market with a value of approximately £4 billion. Petershill’s model is to provide growth capital to, and partner with, alternative asset managers by acquiring minority interests in such managers.