However, while the number has been steady since 2011 there is a noticeable shift in 2018 when there was an increase in the proportion of cancelled permissions relating to merger and acquisition activity.
During that period there was also a substantial decrease in the number of newly authorised firms, meaning on a net basis, the asset management ecosystem is getting smaller and experts expect it will continue to do so.
The FOI, submitted by Investment Week, shows the number of asset managers who cancelled their Part 4a permission, which is the permission they have to carry on regulated activity.
Experts explain the “remarkably consistent” number of managers exiting the industry is in part down to the continued impact of the Global Financial Crisis (GFC).
“It seems the impact of the financial crisis rumbled on long after the stockmarket had recovered with many asset managers leaving the market in the early part of the decade,” said Ryan Hughes, head of investment research at AJ Bell.
“The cost base has been rising – think technology, operations and regulatory burdens,” and on top of that is pressure on fees.
“In the world of active management there has been considerable competition from the largest passive companies in the industry,” he added.
In the regulatory world there was MiFID, which began to roll out in 2004, but had phases, according to Emma Wall, head of investment analysis at Hargreaves Lansdown.
According to Wall, the regulatory regime increased costs substantially for asset managers, “the systems requirements, as well as personnel, to deal with the extra admin and governance responsibilities”, she explained.
All together now
While the number of cancelled permissions has been consistent, M&A activity has comprised over 50% of that activity since 2016, according to Refinitiv M&A deal figures and in 2018 and 2019 it accounted for 75%.
There were two trends noted by the experts during this period. The first was “mega-mergers” pointed out Darius McDermott, managing director of FundCalibre.
Milligan noted that these mergers led to a “plethora of subsidiaries” being wound up and merged which may inflate the figures.
The other trend is the increased M&A activity within the wealth management space.
While wealth managers tend to outsource substantial parts of their investment propositions they often still have an asset management arm with permissions, which would need to be cancelled, Milligan explained.
At the same time as M&A was taking off, new authorisations were dropping, a previous FOI submitted by Investment Week showed. This means that over the past decade 1,719 firms joined the industry, while 1,733 left, meaning there are slightly fewer firms in 2021 then there were in 2010.
The systemic trends causing the consolidation of some firms and exiting of others are not set to go anywhere leading experts to expect more M&A activity in the near future.
“The current trend of M&A activity looks like one that will continue as active managers look to use scale as a defensive mechanism against passive investing and downward fee pressure,” said Hughes.
“As a result, it seems likely the market continues to see high numbers of Part 4a cancellations as the industry consolidation continues at a pace.”
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