City Hive releases M&A report: Fund gatekeepers find culture is the secret ingredient to a successful marriage
City Hive’s latest research, put together with the insights of the ACT Stewardship Council of fund gatekeepers, has found that culture fit is the secret ingredient to an investment management group merger - but knowledge of this is often overlooked, risking long-term success.
As revealed in the report Promises and Pitfalls: Finding good client stewardship amid investment M&A, performance and client retention are affected by much more than the products on offer; the culture, values and behaviours of both parties involved in a merger need to be deeply understood to ensure future long-term success of the combined business.
City Hive engaged the ACT Stewardship Council of fund gatekeepers, which is responsible for over £2trn in assets under advice, as well as wider ACT Stewardship Council, fund buyers, analysts and asset managers, as well as experts in the legal and regulatory aspects of the process.
We found that in an industry that is seeing ongoing significant consolidation in the face of fee pressure, complex regulation, technology advances and evolving investor behaviour, many groups are failing to account for culture and fit when it comes to M&A activity.
The ACT Stewardship Council cautioned how the complexity and noise of M&A can lead to a failure to consider corporate culture and fit. If this is not integrated into M&A decisions, talent, processes and client services could soon unravel relationships and long-trusted brands long after the legals have been ticked off.
Mandy Kirby, co-CEO of City Hive and author of the report, commented: “Mergers, acquisitions and changes to business structures are continuing apace across the investment industry, driven by the need to consolidate, acquire assets, or to access new markets or strategies. The pressure to demonstrate value for money is only increasing.
“Understanding what is important about the process helps the directly and indirectly involved parties to make better decisions about their business relationships and asset stewardship. This is particularly relevant as the UK’s Consumer Duty, a lens through which M&A-driven product changes, fee structures and service models are viewed, will continue to shape operations.
“The Promises and Pitfalls report considers merger, acquisitions and reorganisations from two perspectives, juxtaposing the changes that investment management companies undergo alongside the qualitative and quantitative impacts on their clients.
“It builds on the ACT Framework that places culture as a measurable risk lens for fund selectors and manager research functions.”
The report also considers:
Every M&A case is different, so what are the key signals or factors for how the process will play out?
What supports a successful process - and how long might that take?
Which firms and people are best able to adapt and adjust so that they can grow strategically and successfully, rather than reacting to pressure to bring together shrinking asset bases?
(How) can a client ensure that alignment with an existing provider continues under the new arrangements, and what can they do if values are irrevocably diluted?
For clients of asset managers, the report highlights the importance of ongoing monitoring, including via frameworks such as ACT. For asset managers, it urges them to be mindful of clients, and actively engage, question and monitor alignment in order to mitigate their risk exposure.
Please contact HQ@cityhive.co.uk if you would like a full copy of the report.
Notes:
For more information, interview opportunities and photos please email: nataliekenway@cityhive.co.uk or visit the City Hive Press Centre.
For more information on ACT: https://www.investorsact.com/
Or for the Stewardship Council: https://www.investorsact.com/stewardship-council
For more information on City Hive: https://www.cityhive.co.uk/
The ACT Framework is comprised of three key pillars, each with three components:
