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• W70198265 abstract "The temptation to buy: instant breadth, stable earnings, and brand recognition Before you move, answer some tough questions about sales, marketing, and distribution Even when the potential is there, you can give away with an unsound deal structure Investment management is the ticket to success in financial services today. Everybody wants a piece of the action - and for good reason, seems. The US mutual fund business has grown by 19 percent per year over the past five years, while the white-hot 401(k) market has expanded at 14 percent a year. Even the supposedly mature defined benefit market continues to grow at an annual rate of 6 percent, despite negative real cashflow. And just look at the returns. Management fees in mutual funds have risen rather than fallen over the past decade, in spite of massive inflows to the industry. Successful institutional managers enjoy ROEs of over 40 percent. Is any wonder that so many companies want in? The desire to enter or grow has led to unparalleled M&A activity. In 1995, over 80 deals were completed in investment management, at an estimated total value of $6 billion. In 1996, more than 70 deals worth in excess of $10 billion were completed. For many established players and for those seeking to build a position in investment management, the pressure to acquire is intense. It applies to players across the whole spectrum of markets - retail mutual funds, individualized investment management, and traditional institutional and defined contribution - and to the full range of firms, from diversified financial institutions to conventional stand-alone investment houses. While many look to acquisition to meet a genuine need, there is no guarantee that the expected gains materialize. Many obstacles stand in the way of value creation, not least of which is the difficulty of managing a combined entity effectively. However, the likelihood of success can be increased by several measures: a well-articulated strategic rationale, a creative deal structure, and the pursuit of organizational excellence. The pressure to buy Competitors cite many reasons to acquire: We need to be in this game Demographic trends in most developed countries, the privatization of pensions, and the increasing acceptance of investment products among consumers suggest that strong - if not blistering - growth should continue in the investment management business. Many traditional diversified financial institutions crave the stability of earnings and high returns on equity with which is associated. As banks and insurers run out of ways to generate substantial earnings growth, the high fee-based incomes of investment management seem more and more attractive. We must be big to survive and thrive The retail mutual funds and 401(k) sectors of investment management are becoming increasingly dominated by large players. The need for scale is driven by spending requirements - primarily in the areas of brand building and advertising, technology capability, and product depth. Together, the three largest mutual fund complexes that also compete heavily in the 401(k) business are estimated to have spent in excess of $500 million on advertising in 1995. As the demand for international product grows, the cost of supporting the research, information, and portfolio management capabilities of an international operator is raising scale requirements even for traditionally defined benefit players. If we don't buy it, somebody else will Now that many principals or founders of first-generation investment firms are preparing to cash out, something of a prevent our rivals buying it mentality has developed among prospective acquirers. This tendency is being exacerbated by the arrival on the market of larger, more branded firms whose current owners are trying to take advantage of the sellers' market. …" @default.
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• W70198265 date "1997-03-22" @default.
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• W70198265 title "Will Success Spoil Investment Management" @default.
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