Consolidation in AM?
Hi all, interested to get views on how AMs will consolidate in the following years. Already seeing T. Rowe Price expanding into Private Markets with its largest purchase. Do we expect other traditionally strong long-only managers (Fidelity, Wellington, Capital Group) to start doing the same for market share / to gain capabilities in other alternative asset classes?
Absolutely.
lmao. some of the managers you mentioned already in private markets. I left my last AM because of the operational obstacles to entering the private markets... me and one of the PMs scheming to launch certain products... COO pushing back because he was a total ignoramus dumb ass... so I joined a similar AM to one you mentioned in the newly created private market division. so COO at my previous shop looks stupid now as I was the only one with exp to launch the offering and the new CEO there was keen.
In both equity and FI, firms are actively pursuing alternatives / private markets. Far less transparency and less liquidity which gives them a big boost in harvesting beta (as they don't have to manage for redemptions). Able to receive and charge far greater fees. The large firms with great inhouse research depth will have a major advantage as many of these deals are off the grid. A passive mgr would have a real hard time being competitive which is why so many are moving there.
I'd expect we'll get to the point where there are 8-10 large multinational asset managers on one end of the active spectrum, and 100s-1000s of small/niche boutiques on the other. There's some room for middle ground, but consolidation appears somewhat inevitable.
I think a lot of Funds are acquiring private market capabilities because that's what's been performing/selling well. Large AMs will probably end up overpaying at the top of the market.
I'm curious exactly if other companies will follow T. Rowe Price's lead. Wellington and Capital largely attained their current structure through acquisition of boutique firms focused on specific styles so I'm curious if they will do this as well. T. Rowe Price largely did this as a means of ease from a regulatory issues perspective (Apparently, it's pretty tough to start a private credit business if you're a LO AM, I guess...but I'm no lawyer). The company has (for a time) wanted to expand into private credit, and this was seen as the most value-accretive way to do it. I think for employees at that company, an expansion into private credit was no shock. But Oak Hill Advisors, nobody was expecting.
It is a BOLD move for a relatively, shall I say mundane company, running a fairly mundane business with a very stimulating and strong research component. It speaks to not just a desire for large companies to expand into other areas, but a need to. AM like all industries will face consolidation, and this will be driven by the top handful of players, as we see here. I'm fairly hesitant to use this as a barometer for future acquisitions in AM, but I think it is a facet of what the industry will see moving forward.
Essentially EVERY industry goes through commoditization. Fintech/ AI is accelerating that in the AM space. Yet there are still many spots of the market that are inefficient and that's where Privates and Alts can really shine. The larger shops are adding this to put a mote around their core business.
That said, Every industry has two primary survivors and even those that thrive. Large scaled giants that can operate on razor thin margins (think Walmart - transactional) and small relationship focused boutiques that are focused on creating a unique client experience. The challenge is deciding both which one you want to be and how to get there. The ones who don't have real (massive scale) but want to compete with the transactional players will get crushed. You see this in every industry. They live in "no man's land". Not a good place to be. Find the scaled players that are committed to world domination or the little guys that do the best job in the world of winning and keeping high margin mandates.
8% of AUM for Oak Hill seems like a steep price for an alts credit manager but what do I know?
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