The merger between Janus Capital and Henderson Global Investors has done little to abate the challenges faced by both asset managers in their core markets, says Morningstar analyst Greggory Warren.
“Janus Henderson will need to figure out how best to navigate the headwinds posed by the US Department of Labor’s fiduciary rule, as well as additional layers of regulation in European markets, which Brexit is likely to make even more complicated,” Mr Warren said.
All told, the merger of two asset managers is “unlikely to be much greater than the sum of the two parts”, he said.
“We’re generally not fans of mergers and acquisitions in the asset management industry, with most deals failing to live up to expectations because of culture clashes and an inability to deliver revenue and cost synergies,” Mr Warren said.
“That said, we expect to see a greater level of consolidation moving forward, as firms look to scale up their business to offset the fee and margin pressures created by both regulatory actions and the growth of low-cost passive products.”
The management teams of Janus and Henderson deserve some credit for being an “early mover” in the consolidation cycle, said Mr Warren.
“While we’re willing to give the firm the benefit of the doubt when it comes to the estimated $110 million in annual cost synergies that management anticipates from the combination of Janus with Henderson, we believe that much of this going to need to be reinvested back into the business,” he said.
“Given the intense focus on performance and fees, asset management firms will not only need to pare their fees but spend more to produce investment results and enhance distribution.”
