That was 2014 – what does 2015 have in store?
It is at this time of year that the SORBUS Advisory Board reflects on the changes in the wealth management sector over the last 12 months and more particularly assess our match fitness for the year ahead. Before looking at the specifics on the wealth management industry it is interesting to note two important trends in 2014:
- M&A activity topped $3.3tn in 2014 which is a return to 2007 levels. 2014 also saw the return of the mega deals with the $71bn acquisition of Time Warner by Comcast and the $67bn acquisition of Direct TV by AT&T (these are both in the top 10 big deals in the last 10 years). With continued low borrowing rates and relatively buoyant capital markets the course is set for this M&A trend to continue;
- 2014 has been the year of the disaggregators. Look at the impact of Uber on the use of hired transport in capital cities around the world. Who could have predicted the success of food discounters like Aldi and Lidl? Airbnb has just celebrated its sixth birthday and looks like it is on track to do what Uber has done to the taxi hire industry in the hotel industry (if you have not heard of it this company operates a bedroom rental web site and was recently valued at over $10bn, which is $2bn more than the Intercontinental Hotels chain).
Closer to home what are the trends in the global wealth management industry? Almost all of the larger firms are corporates and have not been immune from increasing M&A activity. Scorpio Partnership publish an annual round up of all wealth management “deals” – 2013 saw new highs with over 60 mergers and $760bn of funds changing hands – although the figures are not yet available it looks like 2014 will have been just as busy.
In the UK notable changes in ownership in the family office space include Sandaire buying Lord North Street and the merger of Stonehage with Fleming Family & Partners (FF&P) to create the catchily titled “Stonehage Fleming Family & Partners”. As is always the case with those firms that search for scale, they leave behind many clients who had joined them in order to get away from the private banks only to find their new provider is starting to look very much like that which they fled.
Other investment management deals include Old Mutual’s purchase of Quilter Cheviot and Bestinvest being sold to Permira then buying Tilney from Deutsche (which has in effect exited the UK market).
Alongside that there has been the usual cycle of teams leaving consolidated organisations to start up their own boutiques, restarting this cycle.
So what does this herald for 2015 in the wealth management industry? Our view is that we will see:
- Continued M&A as firms look for ways to reduce their cost base to drive greater returns through greater scale (more funds under management).
- Greater interest from overseas buyers looking to exploit the weak £ and secure a foothold in the lucrative UK wealth management sector.
And what impact will this have on SORBUS? The simple answer is – none whatsoever. We have a business model that genuinely supports our commitment to put client interests first:
- We are wedded to the partnership model. We do not have shareholders seeking greater returns driven through financially engineered acquisitions.
- Our fees will continue to reflect our wealth management expertise and not the funds under management. The complexities of managing a £100m fund are not 10x that of managing a £10m fund.
- We will continue to invest disproportionately in our investment research capability. As our competitors seek greater scale through acquisitions their wealth managers increasingly revert to becoming spokesmen for expensive in-house products. Each of our clients is different their investment strategies reflect this and we will continue to draw on the full range of all investment opportunities that best suit each individual strategy.
2014 has been a good year for us and our clients in the face of challenging markets. The SORBUS model may not attract the same attention as Uber and the other disagregators but it is certainly gaining traction in the wealth management sector.
On behalf of the team we thank you for your continued support and wish you a very healthy and prosperous New Year.