Fund rationalisation is expected to continue in the near term after the number of closures and mergers last year climbed to its highest level since 2005.
The IMA’s annual asset management survey revealed 229 funds were closed or merged away last year, a 45% increase on 2008. In addition, the amount of fund launches fell to 153, a 41% drop on the previous year.
The net reduction of 76 vehicles in 2009 was the largest decline in overall fund numbers since 2003.
Using figures from the last severe market downturn 2000 to 2003 as a guide, the IMA says there is a time lag between weak market performance and fund launch and closure activity.
“If a similar pattern were to emerge during the current market downturn, then some consolidation at fund level would be expected over the next few years as has already been seen during 2009,” it says.
“The latest figures have been influenced by weak markets, which directly affect revenue, forcing fund companies to assess whether or not their funds continue to be commercially/strategically viable.
“Merger and acquisition activity in the asset management sector will also affect fund numbers as firms involved assess whether to merge or close similar lines of funds due to duplication and excess capacity.”
Investec UK distribution managing director David Aird says consolidation is inevitable as many funds never manage to achieve critical mass.
“There is continued polarisation in the marketplace, with a winner-takes-all dominance in each IMA sector. Fewer than 10% of funds take 90% of all the inflows, and it is becoming more acute,” Aird says.
“The key consideration when launching a fund is whether you have the internal capability to add value over the benchmark for the long term. The funds launched by marketing teams do get exposed over time.
“While there is no rule, I believe funds should have a target of attracting £50m to £100m in the 12 months after launch.”
While Aird expects consolidation in the traditional fund sectors, he expects overall fund levels to remain static.
“The innovative products under the Ucits III umbrella will continue coming to the marketplace, making up for the rationalisation at the other end,” Aird adds. “These launches will come from traditional managers expanding their product offerings, or hedge fund managers coming the other way.”
