Fund managers drive banks to despair

At the top of the market, every ambitious bank wanted to own a global asset management operation. They were prepared to pay high prices for supposed steady earnings providers. But as markets have plunged revenues have tumbled and now banks are wondering what investment houses are really worth to them.

THE FIRST RULE of investing is that the value of your portfolio can go down as well as up. Everyone knows this, from the average retail investor to veteran portfolio managers at Fidelity. Yet it’s a rule that seems to have been thrown aside by the banking world when it came to buying asset management companies during the last bull market.

The theory was that as an investment bank your earnings stream is highly volatile. What better way to counter-balance that than to build a global asset management operation? Its revenues are steady and, according to the received wisdom of the time, cycle-proof.