M&A in the asset management and fund sector: Key themes for 2025

UK and European asset managers have been facing considerable headwinds over the past few years. The combination of increases in costs and regulatory burdens and an unfavourable economic environment have presented significant business challenges and conspired to reduce margins. These factors have encouraged consolidation within the sector and favoured those businesses which are able to achieve scale both in terms of assets under management and distribution. We can expect merger and acquisition (M&A) activity in the sector to continue and evolve. 

We have sought to identify seven themes for this year which are set out below.

Continued drive for scale

With the costs of investment in new technology, responding to recent regulatory change, continued subdued or volatile macro-economic conditions and considerable fee pressure, some asset managers will be looking to achieve synergies through acquisition or, conversely, through seeking to offload non-core or dilutive businesses. 

We expect to see continued M&A activity in North America, the UK and the EU with a significant contribution from cross border mergers and other business combinations. We can expect that some of these of these deals will be structured on a non-cash basis, partly due to the difficulties in raising equity finance given the current condition of equity capital markets. Conversely, the strong balance sheet of some acquirors and the dry powder in private equity funds as well as a desire for many current holders to achieve a cash exit might also favour acquisition structures that comprise wholly or mainly cash. 

In most cases, a buyer will wish to structure the deal payment as far as possible to protect loss of assets under management prior to closing and for a defined period thereafter, although this is less achievable in a public M&A context. The dearth of initial public offerings (IPOs) and the current limitations of international capital markets also favours M&A as the default exit route for private equity owned asset management businesses. 

Increased activism

The asset management sector, in common with a number of other industries, is seeing greater activist pressure, particularly where there is financial under-performance. Activists are seeking to challenge governance, board composition, corporate structure, potential conflicts of interest and financial strategy with a view to unlocking value through corporate actions and M&A. Institutional investors may be supportive, or indeed encouraging, of the activities of activist funds and the changes they advocate. The relative market rating of some listed asset managers may make them susceptible to unwelcome approaches. 

Valuation differentials for listed asset managers

Whilst the UK and European capital markets have seen overall strong recent performance, modest relative ratings for some listed asset and wealth managers have attracted acquiror interest. This is compounded by the potential for significant valuation differentials for similar businesses across different jurisdictions – for example, the relative ratings of UK listed companies to those in the US, providing opportunities to acquire good-quality businesses at lower multiples. Businesses which have failed to articulate their strategy or to adapt to changing market or regulatory environments may be particularly vulnerable to attention. 

Private equity dynamics

The asset management sector (including fund administration and other related activities) has for some time been a targeted investment for private equity. There is mounting pressure on private equity sponsors to monetise existing holdings, whilst at the same time funds have accumulated a huge volume of dry powder for investment. We can expect these pressures to favour M&A and result in new deals, including secondary transactions between sponsors. 

Potential for regulatory easing

Despite the recent introduction of new regulations which have resulted in further complexity and cost for the industry, there are indications that we can now expect, at least in part, a trend towards regulatory easing driven by changes in the political environment and macro-economic policies. This may extend to a lighter touch approach in the context of regulatory approval for transactions. Most asset management deals will be subject to change of control approvals and the larger deals will also be subject to applicable anti-trust regimes. 

In recent years, the timeline for closing deals has lengthened due to increased regulatory scrutiny. In the US, in particular, the expected shift in anti-trust policy and considerable pressure on regulators in many major jurisdictions to take a less disruptive approach and actively sponsor growth, should help to make a more favourable deal environment and could reduce execution risk in transactions.    

Asset class and tech diversification

Some asset managers will be looking to respond to market pressures by diversifying both the asset classes they manage through acquisitions providing new revenue streams or to acquire new technologies, including through start-ups that will enhance their infrastructure and streamline their investment processes.

The asset manager consolidator or multi-boutique model favoured by certain managers in the US, UK and Europe affords diversification of investment strategies across multiple asset classes and geographies and provides a hedge in volatile markets. In many cases, the founders retain a stake in the business thus affording a degree of financial alignment. 

Pressures on listed funds

Managers of UK closed-ended listed funds are facing considerable pressure from investors including activists. 

Since the Covid lockdowns, most listed funds have seen their shares traded at significant discounts to net asset value (the average discounts in 2024 being in the range of 30%). This has prevented such funds raising equity capital to fund new investments and led to scrutiny of asset valuations and performance, the role of the independent boards and the setting and implementation of investment strategy. 

There have been a number of shareholder requisitions by activist funds to change board composition and realign strategy. Shareholder pressure has also led to M&A activity (for example through the disposal of portfolio assets), managed wind-downs and mergers with other similar funds. 

Low relative individual valuations, in combination with the overall de-rating of the sector, have also led to public bids by global investment firms and private equity (in particular for listed funds investing in infrastructure and energy asset classes).