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(Bloomberg) – Invesco Ltd. bet $ 5.7 billion that active management has a bright future.
Invesco agreed to pay approximately this amount as part of an agreement with Massachusetts Mutual Life Insurance Co. to acquire its OppenheimerFunds equity and bond selection fund, particularly in the international arena. . At a time when many investors are abandoning active funds for products that track indices, Invesco CEO Martin Flanagan is convinced that active funds will continue to play a crucial role in portfolios of retail and institutional clients.
"Investors are looking for a wide range of ways for us to achieve their results – it's about active management with strong conviction, passivity and an alternative," he said. Flanagan during a phone interview.
Roger Crandall, CEO of MassMutual, agreed. "We are convinced that the world will not turn to a single, capitalization-weighted giant index."
Invesco shares increased by more than 8% in pre-market transactions in New York.
This is the latest consolidation of the asset management industry, which is under intense pressure on revenues as investors flock to cheap index funds and exchange-traded funds. Over the past year, several companies have been looking for acquisitions or mergers to grow and prosper, with mixed results. The transaction would bring Invesco's assets under management to more than $ 1.2 trillion, while OppenheimerFunds manages more than $ 246 billion in assets under management.
Glenn Schorr, an analyst at Evercore ISI, said Thursday in a note titled "A more melting ice cube," that the market will likely struggle "to know why they should be excited about becoming more important in a product in secular decline ", even as investors can appreciate the financial growth and understand the benefits of size and diversification.
Invesco, the fourth largest ETF manager, will pay $ 4 billion of preferred shares and 81.9 million common shares to add the primarily active manager to its offering. Common shares are valued at approximately $ 1.7 billion, based on Invesco's closing price on Wednesday. The preferred shares will pay a fixed rate of 5.9%. The transaction is expected to close in the second quarter of 2019. MassMutual will become a major shareholder of Invesco with a stake of approximately 15.5%.
Oppenheimer is best known for its large equity funds that invest globally and in emerging markets. Its largest fund is the $ 36 billion Oppenheimer Developing Markets Fund, which purchases emerging market equities. International funds generally charge higher fees than their national counterparts. They have also been more resilient to the lure of passive investing.
Recent efforts by asset managers to grow through mergers have not immediately paid off. Investors in Janus Henderson Group Plc have lost about 17% up to Wednesday since the January 2017 merger of Janus Capital Group Inc. and Henderson Group Plc. Standard Life Aberdeen Plc has fallen more than 31% since Standard Life Plc acquired Aberdeen Asset Management Plc in August 2017.
Invesco has also been active in developing acquisitions prior to Thursday's announcement. In April, it completed an acquisition of Guggenheim Partners ETFs for $ 1.2 billion. Mr. Flanagan said his background in buying and integrating other asset managers will help the company succeed.
"Writing the check is not enough," he said. "What is really important is to run a combination."
Flanagan said he expected the combination to generate cost savings of about $ 475 million over two years.
MassMutual's Crandall is reshaping its asset management operations. In 2016, he combined some units of the brand Barings headed by Tom Finke. Barings, which managed more than $ 306 billion at June 30, has strategies in the private credit, fixed income, equity and real estate sectors.
– With the help of Matthew Monks.
To contact the reporters on this story: Charles Stein in Boston at [email protected], John Gittelsohn in Los Angeles at [email protected], Katherine Chiglinsky in New York at [email protected]
To contact the editors in charge of this story: Michael J. Moore at [email protected], Margaret Collins, Mary Romano
For more articles like this, go to bloomberg.com
© 2018 Bloomberg L.P.
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