Following a number of major deals over the past year, EY has predicted that more mergers and acquisitions (M&A) will take place within wealth and asset management next year.
EY Oceania Wealth and Asset Management leader Rita Da Silva noted that markets and financial services firms remained impacted by volatility connected to geopolitical conflict, inflation, central bank intervention and increased regulatory action throughout 2022.
Ms Da Silva said that these issues were further exacerbated by the competitive talent market, the rise of responsible and impact investing, and ongoing pandemic-related disruption.
“These drivers will continue into 2023 and Australia’s asset managers will need to accept and respond innovatively to this landscape,” she said.
One of the most notable deals of the past year is the $201 billion merger between Perpetual and Pendal, which now looks likely to proceed despite hitting a number of roadblocks.
“With pressure on returns, margins and profitability impacted by market conditions, and scale and consolidation seen as key answers, 2023 will continue to see mergers and acquisitions activity in the asset management industry,” said Ms Da Silva.
According to EY, this will also include the superannuation sector, where Ms Da Silva forecasts that further consolidation will push asset managers into fewer relationships.
“With interest rates rising around the world and investors continuing to look for high-yield opportunities, we’re likely to see superannuation funds continuing to expand their presence in areas such as private debt,” she said.
The merger of QSuper and Sunsuper into the Australian Retirement Trust was finalised in February this year, creating the second largest super fund in the country with over 2 million members and over $230 billion in funds under management at the time.
APRA’s MySuper performance test has also been a driving force for mergers, with 10 of the 13 funds that failed the inaugural test in 2021 having either merged or exited the industry.
These significant moves have come during a highly challenging period for the Australian wealth and asset management sector.
“The drive for digital transformation of all aspects of their business that accelerated during the COVID-19 pandemic will advance further for wealth and asset managers, as front and back-office functions implement more automated processes and tools to help reduce costs and create more efficiencies,” Ms Da Silva predicted.
Furthermore, EY also pointed out that the delivery of advice will be subject to a regulatory overhaul in 2023 following the release of the Quality of Advice Review.
“Balancing these demands remains a challenging prospect for the sector,” said Ms Da Silva.
“Regulators are focused on operational resilience and risk management, and true-to-label disclosures, including greenwashing. This will impact the whole wealth and asset management ecosystem.”
