EG FINANCE AND INVESTMENT SUMMIT: Crippling regulation and growing investor demand for scale and track record means there could be no new smaller fund managers.
“I would say it is impossible to set up a fund management business from scratch,” said Simon Radford, chief executive of Lothbury Investment Management.
“Regulators are encouraging larger firm [and] investors are completely focused on track record and performance. If you cannot demonstrate these, they will not give you equity.”
Radford was speaking at the EG Finance and Investment Summit on a panel examining the spate of recent fund manager mergers and takeovers. Lothbury has recently agreed a deal with Japanese investor Nomura.
James Thornton, chief executive at Mayfair Capital, bought by Swiss Life, produced a dossier of regulations affecting the sector: MIFID in 2007, Basel in 2008, AIFMD in 2013, the Fourth Money Laundering Directive in 2015, then MIFID 2 and GDPR this year.
Less choice
“Small businesses like ours won’t start and I think that’s negative as there will be less choice,” he said.
The other reason for the rise in mergers has been fund managers calling the top of the market and removing skin from the game.
“We all accept it could be late cycle,” said Jos Short, executive chairman, Principal Real Estate Europe. Short’s company INTERNOS was bought by Principal earlier this year.
“[But] we are not going to run to the hills because most people in these transactions are tied in for a period of time. We are very positive about how things are going with Principal.
“We are on retentions and earn-outs. We will work with Principal for a long time.”
Thornton said Swiss Life was a long-term investor, adding that even the uncertainty created by the UK leaving the EU did not derail the deal.
“The chief executive came back and said: ‘We don’t need to talk about this anymore we are long term investors,’” Thornton said.
Short said that while Europe and the UK may seem expensive, cost depends on where you sit relatively. The US and Japanese markets are even later cycle.
Good value
“I think they are viewing UK and Europe as quite good value relatively, and their investor clients think likewise. That’s the principal driver.”
Nor is the spate of deals – which has seen several major UK names sell all or part of their business – at an end.
Radford said: “The UK is one of the most significant real estate markets in the world. People want to invest here. As people look to build their network, that will bring organisations into contact with each other.”
“A lot of the big global houses are still interested in real estate and private debt, because the fees are better in private markets,” said Short. “Real assets are becoming a key growth initiative.”
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