When Deutsche Bank
paid $2.5 billion for Zurich Scudder Investments in 2002,
its then chairman, Rolf Breuer, hailed it as a landmark
transaction that "furthers Deutsche Banks strategic
objective and commitment to achieving scale in our global
Private Client and Asset Management (PCAM) business". It was
the final big deal of his hyperactive time at the helm of
Deutsche, which had also seen the acquisitions of Morgan
Grenfell & Co and Bankers Trust. One month later
Josef Ackermann took charge.
Times change and so do
Deutsche Bank chief executives. Deutsche is now auctioning a
large chunk of PCAM, 400 billion in assets under
management, just as
Ackermann prepares to leave. The waxing and waning of
enthusiasm for fund management will bookend his tenure in
charge. But Deutsche is not alone in having a schizophrenic
approach to asset management. Banks, particularly in Europe,
are under intense pressure to shore up their capital.
Businesses that were once core and strategic are suddenly
peripheral and disposable.
Or that, at least, was
the hope. In fact, fund managers are proving to be less
fungible than their owners might wish. Last May,
capital-challenged Italian bank UniCredit shelved plans to sell
Pioneer, the US mutual fund manager it acquired for a
kings ransom in 2000. It has since cited improved
revenues and the poor quality of takeover candidates as reasons
for keeping the business. Low bids and the unwillingness of
potential acquirers to buy Pioneer in one piece also played a
That is the problem
Deutsche faces now. The businesses it is selling DB
Advisors, Deutsche Insurance Asset Management and real estate
manager RREEF are a curates egg. They are good in
parts, but do not sit easily together, hence the separate
RREEF would be straightforward to value as a standalone
entity, but acquiring a property business will not be on the
agenda of a consolidator looking to take control of assets and
strip out costs.
Deutsche Insurance Asset
Management is successful and because of the nature of its
business will have long-term relationships and contracts. The
cash and fixed-income dominated DB Advisors, on the other hand,
is far more susceptible to clients walking out of the door.
Price is also likely to be an obstacle. With the exception of
RREEF, these are largely low-margin businesses. Deutsches
reported valuation of 2 billion is modest by the crude
measure of assets to price (0.5% of assets). But that still
sounds an ambitious target given the business mix and execution
risk. However, Guggenheim Partners is now in exclusive
negotiations to buy the business.
It is a measure of
Deutsches mishandling of PCAM that when it paid "just"
0.9% of assets for
Zurich Scudder, executives crowed that they had scooped a
bargain. At first blush it looked as though they had a point.
UniCredit paid an eye-watering 5% of assets for Pioneer
$43.50 a share, a 40% premium to a price that had already
doubled in the previous four months. But a lost decade has
taken its toll on PCAM.
and Deutsches dwindling band of suitors also reflects a
diminishing appetite for asset management businesses. Last year
there were a paltry 112 transactions, according to specialist
financial services investment bank Freeman & Co. If
Deutsche gets its deal done, it would represent more than all
the assets under management that changed hands in the top-10
deals in both 2011 and 2010.
Many banks and insurers,
especially in Europe, are hors de combat given the sovereign
crises and uncertainty surrounding Basle III, Solvency II, the
European Markets Infrastructure Regulation and the upcoming
review of Mifid. In the US, banks are scrambling to divest
hedge fund and private equity assets as a result of the Volcker
Rule and Dodd-Frank. European banks do not need to be asset
management manufacturers to generate money from the business.
The fund distributor, often a bank branch, retains 41% of the
proceeds on average when a Ucits product is sold.
The best hope for wannabe European sellers of fund managers
might be that banks with unencumbered balance sheets from
emerging markets decide that there are assets and fees up for
grabs at distressed prices.
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Asset managers still
enjoy decent profitability and double-digit growth rates in
Europe. One of the more notable transactions in 2011 was the
acquisition of private bank KBL (with 47 billion in
assets under management) by Qatari investors.
Buying smaller firms and
seeing them blossom organically might prove more attractive
than big asset-grabbing deals that rarely succeed. The one
piece of Deutsches tottering asset management empire that
is both highly successful and not for sale is European retail
powerhouse DWS Investments. While assets under management in
other parts of the business have stagnated since the Zurich
Scudder acquisition, DWS has grown from 136 billion to