The £9.9bn takeover of Schroders by Nuveen has created a great deal of a stir amongst the investment community.
For one investor, the takeover provides an interesting insight into the dynamic within the investment and asset management world.
“There is evidence that smaller, independently run managers can deliver meaningful excess returns over larger peers in markets where active management still thrives,” said Tom Caddick, managing director at asset manager Nedgroup Investors.
A central issue is that mid-tier managers in the likes of Nuveen and Schroders are becoming squeezed between top-tier mangers at the high end and boutique managers at the other, meaning similar mergers could be on the horizon.
“The pressure on mid-tier managers to scale, diversify and defend margins – all at the same time – dilute energy and focus,” Caddick added.
Caddick also noted: “Scale has its place. But in an era of fee compression, rising costs and accelerating consolidation, the boutique advantage is likely to become more visible,” added Caddick.
The conclusion of this means managers need to be top tier, the likes of BlackRock, or boutique, as the middle tier will be squeezed.
From an interview with the Financial Times William Huffman, Nuveen chief executive, seems to agree. “You need scale, scale allows you to drive better investment performance, drive better financial returns and allows you to grow,” he said.
Nuveen is owned by the $1.3trn Teachers Insurance and Annuity Association of America (TIAA), which does make it a bigger hitting organisation than it first appears.
The two businesses in a press notice said they are highly complementary, with aligned cultures and a shared focus on long-term investment performance, sustainability and innovation.
Both company boards have given a thumbs-up to the deal, with the Schroders board unanimously recommending the offer to shareholders.
Two certain things will happen due to the takeover.
First, is the Schroders brand will be retained, with London remaining the company’s largest non-US business centre point.
Second, Schroders will exit the London Stock Exchange.
This could be seen as another blow to the exchange, which has seen a number of departures in recent years. Although there are numerous reasons for these exits, so not all are comparable.
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