Pierre Bauwens (Associate Director, Alpha FMC – Luxembourg) and Rob Owen (Associate Director, Alpha FMC – London) discuss the growing weight of influence from Fund Management Companies (ManCos) in the Asset Management value chain. According to both experts, “the game is changing” as ManCos step into a more strategic advisory role and are using digital capabilities to offer “all-in-one” solutions for clients. With a flurry of recent M&A activity in the sector, speed is of the essence for established ManCos or private equity investors to capitalize on opportunities to cement a position in the industry.

A new reality in a new environment

Size and substance are becoming essential for ManCos, in terms of staff, fund expertise, operations and relationships. They are stepping into a more strategic advisory role, providing ‘all-in-one’ solutions to service clients investing billions into complex types of funds across Europe. “For instance, ManCos must address and implement all directives and laws impacting the mutual fund activity and then need to demonstrate that they are providing appropriate services to the different stakeholders” states Pierre Bauwens. He also highlights that growing client expectations has led to the need for ManCos to provide more detailed information, innovative products and spotless service.

Economic uncertainty and geopolitical developments are expected to accelerate these trends. For example, since Brexit several ManCos have opened offices in Luxembourg to continue serving the EU market. As highlighted by Rob Owen, “the financial services industry, and especially the Asset Management industry, was already global in its nature with the vast majority of ManCos being domiciled in Luxembourg and Dublin prior to Brexit. Some firms will have to further adapt their business models to continue serving clients, which also means new opportunities for ManCos in Luxembourg”.

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Rob Owen, Associate Director, Alpha FMC – London

 

Investing in digital and people

“With more demanding clients than ever, Fund Management Companies must build a coherent proposition across administration, reporting, end-to-end investment oversight and distribution. To achieve this, data and digital solutions are essential. ManCos are therefore investing massively in technology,” highlights Pierre Bauwens. Having the right systems is not enough, as ManCos must also target investment in extending the breadth and depth of their expertise to support an innovative service offering. Doing so in a turbulent economic climate, coupled with growing pressure on costs, remains a key challenge.

“Technology plays a pivotal role in the Asset Management value chain: it allows companies to maintain their competitive advantage, increases efficiency and allows the development of new services and offers. Digital changes the game for ManCos as it eases communication with clients and stakeholders. Moreover, it facilitates the production of required electronic reports. I can also imagine that a digital solution will emerge to ease the oversight of the TPAs, and to monitor the performance of the fund,” explains Pierre. He also highlights the need for ManCos seeking scale to manage the increasing complexity of collecting and analyzing data. According to Pierre, ManCos must become adept at reviewing business problems and recognizing how to address them with the data shared between their business partners. “Here again, Luxembourg has a card to play, by using its expertise in the Asset Management industry, its network of service providers and wealth of international talent”.

Rob Owen agrees with his colleague: “Technology is a key facilitator, allowing ManCos to fulfil their primary duties; providing oversight of the assets within a fund, ensuring the overall portfolio is operating within the guidelines set out in the prospectus and to provide early warning of any trends that may breach it. Yet technology is often seen as a method of cutting costs within the back office. Those leading the way are pro-actively investing in new digital solutions to enhance client and investor outcomes. When exploring a potential transaction, we advise clients to design a high-level target operating model and IT landscape during the DD phase. This allows assumptions to be tested and the quantum of capital expenditure required to deliver the combined business to be established pre-signing. These items should be reflected in the purchase price and not found out during the implementation phase.”

 

Shaping a Successful Deal

In response to these trends across data, client expectations and talent, ManCos must create new propositions and evolve their client service model. To do so quickly and cost-effectively requires building scale at pace with a clear vision for the future operating model of the business. How? ManCos should consider bringing the opportunity for acquisitions higher up their strategic agenda. “Those who match their strengths with what their clients value most, by how they package together their services, will benefit from the most scalable and sustained growth. In order to win, ManCos must target investment across their operating model, with consideration for both internal and external options for growth” conclude Rob Owen and Pierre Bauwens. Alpha believes some key success factors for ManCo acquisitions include:

→ Identifying financial cues which guide where to focus for synergies

→ Improving how the combined business is managed and operated

→ Addressing the strategic blind-spots

→ Protecting value through due diligence and integration

 

Today, Alpha FMC counts more than 430+ consultants deployed from twelve offices, providing clients with complementary propositions covering consulting, technology services and contracting. The two experts emphasize that “the sector knowledge within our firm allows us to guide our clients during the entire lifecycle, from shaping the business strategy, to defining the operating model and making the right choice of technologies and skill sets”. With experience supporting clients throughout the transaction process, along with consulting expertise in all segments of the Asset Management value chain, Alpha is well positioned to support ManCos through the key strategic choices to become ‘one-stop-shops’.


Publié le 28 juillet 2020