• Palmer Capital’s takeover of Invista points the way to more consolidation in the asset management industry
• Non-performing funds face a threat from regulation and from private equity players
The two-year wind-down of what was once the UK’s largest listed fund manager has been referred to as “the death by 1,000 cuts”.
Since Invista Real Estate Investment Management was stripped of its largest group of mandates, the £2.3bn of assets managed on behalf of Lloyds Banking Group, in October 2010, rivals have been tortuously slicing away at its remains.
Former chief executive Duncan Owen mounted an aborted management buy-out before joining Schroders to clinch its takeover of the Invista Foundation Property Trust; rivals Orchard Street and Internos picked up vehicles; Picton entered the fray then walked away.
A £39.7m takeover
The process concluded last week when Palmer Capital completed its £39.7m takeover of the rump of the business and delisted its two remaining vehicles – the Invista Real Estate International Fund and the Invista Real Estate Opportunity Fund.
Since the downturn, consolidation has been a consistent theme in a fund management sector under pressure to deliver returns in a new world where values are not on a seemingly endless upward-only trajectory.
This latest deal, which was not without drama of its own (see box), has focused attention on how many UK asset managers are sitting on moribund vehicles, and raises the question: will we see rival funds and private equity buyers swooping on them in the months to come?
This is definitely the view of some industry insiders who believe that the asset management market is on the verge of a new phase of consolidation, one that could see many more distressed businesses coming up for sale.
“I think there should certainly be more deals similar to the Invista REIM sale in the UK over the next year.
“There are a number of asset managers in the UK that are essentially running zombie funds, and I don’t think it will be long before some of these get to a point where a sell-off is the only option,” one private equity investor who declined to name any possible targets told Estates Gazette.
So-called zombie funds have been a subject this year of heated discussion in the US, where the Securities and Exchange Commission announced in June that it was to launch an investigation into inactive fund managers which sit on non-performing assets that cannot be sold for a lack of buyers, while charging fees to investors.
While non-performing funds may seem like an interesting option for private equity buyers, others are less convinced.
One asset manager explained: “Troubled asset management businesses are not necessarily good buys for private equity investors because they come with considerable debt of their own. This isn’t necessarily a good fit for the private equity model, which uses a highly-leveraged buy-out strategy.”
Push towards consolidation
Looming takeovers of underperforming fund managers are not the only factor pushing the sector towards a period of consolidation.
Few in the industry can be sure what the impact of the Alternative Investment Fund Manager’s Directive (AIFMD), currently in its consultation phase, will be, but there are concerns that increased regulatory requirements could push struggling funds to the brink.
The asset management industry saw a proliferation of new businesses spring up in the early 2000s, but a tough property market and the new regulatory squeeze from AIFMD could mean that a cull is on the way.
Although it is unlikely there will be another process quite like the Invista deal, we are likely see more takeovers and mergers in the asset management world in the coming year.
Ups and downs of Invista deal
Palmer Capital swooped on Invista REIM with a £39.7m offer in June this year that was met with almost universal approval by shareholders. Its offer for the Asia-focused Invista Real Estate International Fund and the UK and Europe-focused Invista Real Estate Opportunity Fund trumped an earlier £33.6m bid from rival Internos Real Investments. Palmer also saw off interest from private equity firm Mount Street Capital Partners.
The deal, which was funded by US real estate investor The Townsend Group, adds £150m of assets across two funds to Palmer’s growing £800m fund management business. The two funds will not be renamed, and Invista REIM’s 37 employees will be retained.
