The asset management industry has seen increased M&A activity in recent years due to several factors, including regulatory pressures, increased competition, changing client preferences, and the need for scale and efficiency in the face of rising costs.

As a result, asset management firms are increasingly turning to M&A to gain access to new markets, expand their product offerings, and achieve cost savings through economies of scale. This article explores the rise of asset management technology and its impact on M&A deal activity in the industry.

Why is Asset Management Technology Important?

Asset management technology is essential for several reasons. Firstly, it allows asset managers to make better investment decisions. By leveraging advanced data analytics and risk management tools, asset managers can identify trends and opportunities that might not be visible through traditional analysis methods.

Secondly, asset management technology can help asset managers streamline their operations and reduce costs. Many software solutions automate time-consuming tasks, such as portfolio rebalancing and reporting, freeing up time for asset managers to focus on higher-level tasks.

Finally, asset management technology can help asset managers meet the changing demands of investors. With increased competition and pressure to generate returns, investors are looking for asset managers who can demonstrate a track record of success and a sophisticated approach to portfolio management.

The Rise in Asset Management M&A

Accessing New Markets

One of the main drivers of asset management M&A is the desire to gain access to new markets. For example, a firm may acquire another firm to gain access to a new geographic market or to expand its product offerings into a new asset class. In addition, asset management M&A can help firms achieve cost savings through economies of scale, as larger firms can spread fixed costs over a larger asset base.

Scale and Efficiency

Another factor driving asset management M&A is the need for scale and efficiency in the face of rising costs. Asset management firms are facing increasing pressure to reduce fees, which is putting pressure on margins. By merging with or acquiring another firm, asset management firms can achieve cost savings through economies of scale and reduce the impact of fee compression on their bottom line.

The Rise of Passive Investing

The rise of passive investing has also been a driver of asset management M&A activity. As more investors turn to passive investment strategies such as index funds and exchange-traded funds (ETFs), asset management firms are looking to gain scale and reduce costs to compete with low-cost passive providers.

Technological Advancements

The asset management industry has also witnessed significant technological advancements in recent times. Firms are increasingly investing in technology to improve their investment processes, risk management, and client engagement.

The rise of digital platforms and robo-advisors has also disrupted the industry, leading to increased competition and a need for firms to adopt new business models. As a result, asset managers are seeking M&A opportunities to acquire technology solutions, talent, and capabilities that can help them remain competitive in the industry.

Regulatory Pressures

The asset management industry is highly regulated, with increasing regulatory pressures from various regulatory bodies worldwide. The need to comply with these regulations and manage the associated costs has led many asset managers to seek M&A opportunities as a means of achieving scale and building stronger compliance functions.

Chris Brooke, Financial Technology M&A Advisor says:

“The increasing demand for technology solutions has led to the emergence of many new players in the asset management market. This has created a highly competitive environment where companies are seeking to gain market share through strategic acquisitions.”

Examples of Asset Management M&A Deals

There have been several notable M&A deals in the asset management technology space in recent years. Here are a few examples:

• In March 2023, AI-powered real estate technology and investment company acquired real estate platform, Rhove. Through the business combination, reAlpha materially expands its investor base as Rhove’s 5,000+ dedicated users will join the reAlpha community.
• Cobalt relaunched as CobaltFX, spinning off its digital asset business to a new venture on the same platform in March 2023.
• In February 2023, Indosuez acquired a majority stake in FinTech Wealth Dynamix, a provider of client lifecycle management solutions to wealth management and asset management firms worldwide.
• In 2022, Hg Capital acquired leading technology provider , TrustQuay and Eurazeo made a significant investment in Neoxam, a provider of functional modules which answer to the specific requirements of financial institutions such as asset managers, asset owners, custodians, fund administrators and investment banks.

Next Steps

Asset management technology is driving M&A deal activity in the industry, creating opportunities for both buyers and sellers. If you are an asset management firm looking to expand your technology capabilities or a technology provider seeking to partner with an asset management firm, now is the time to act.

At our M&A advisory firm, we specialise in helping clients navigate the complex landscape of asset management M&A deals. If you would like to learn more about how we can help you achieve your strategic goals, please book a consultation with us today.