It’s become a cliché to say that 2020 has been a year like no other, but it’s the truth. From bushfires to pandemics, the last 12 months will go down in history as a time of unprecedented change for global finance.
It began with BlackRock, the world’s largest asset manager, swearing off active investment in thermal coal and pledging to drive sustainability across its portfolio companies. Given CEO Larry Fink had previously rubbished the idea of ethical and sustainable investing (saying BlackRock’s job was to create value for clients, not lay down in front of a bulldozer) the about-face was something like AMP deciding to ditch vertical integration.
But since then, BlackRock has become a major force for change within the industry, engaging with thousands of companies and signalling that it will now back shareholder resolutions rather than giving management time to turn things around.
Speaking of AMP, you’d be hard pressed to find a company that’s had a worse year. From the mysterious departure of Alex Wade (AMP has still refused to confirm if its Australian business was doing exactly the same thing that led to the demotion of his AMP Capital counterpart, Boe Pahari) to plummeting adviser numbers – and finally, a takeover bid from US private equity giant Ares. PE’s propensity for sending underperforming business units to the glue factory (or rather, the highest bidder) doesn’t bode well for wealth, or the bank.
2020 will also be remembered as the year that the super cold war went hot once again, with the release of the retirement income review (RIR) and the government’s Your Future, Your Super reforms threatening to dam the rivers of gold that have made Australia’s superannuation capital pool one of the largest in the world. And while the RIR has been grudgingly accepted by even the most militant lobby groups, the reforms haven’t. Industry Super Australia has vowed a fight on the reforms, which it sees as unfairly benefiting the underperforming retail fund sector, while Labor has also drawn a line in the sand as it looks for a weapon to take to the election.
And all of this is almost without mentioning the pandemic, which shook markets to their core early in the year and saw the big four banks attempt to make RC amends by freezing mortgages and backing the government’s stimulus packages, including by tipping capital into the Business Growth Fund (chaired by former pollie and NAB bigwig Mike Baird, proving that the revolving door between business and politics will continue to revolve until the heat death of the universe).
And while their generosity is doubtless appreciated, one wonders exactly what they got for it. The reputational benefits are hard to understate, and at relatively little cost given how quickly most customers resumed payments – but the government’s questionable move to axe responsible lending laws, a cornerstone recommendation of the royal commission, might provide the real answer.
2021 will deliver more challenges as investors search for opportunities in the new normal of COVID-19 and governments attempt to get their economies back on track without cutting the support that carried their people through the pandemic and recession. But it’s clear that – with new strains of the virus spreading globally, and fresh outbreaks at home and abroad – 2020 might be in the rear-view, but COVID-19 isn’t.
More mergers on the cards for 2021
2021 will see more M&A activity in Australian finance as private equity and established wealth managers look to increase their market share.
The latter half of 2020 was rocked by IOOF’s acquisition of MLC and the news that AMP was also up for grabs – and that trend is set to continue, according to Rita da Silva, EY’s Oceania leader for wealth and asset management.
“Looking ahead, 2021 will bring even more M&A activity in the Australian wealth and asset management sector, with new entrants and increasing interest from private equity groups,” Ms Silva said.
“Non-traditional offerings are already having an impact on the market, as customers look for more innovative wealth management solutions that are tailored to meet their evolving needs, and that trend is likely to remain. We can also expect to see further consolidation in the superannuation sector, as funds face continued pressure to justify their performance and member returns.”
That view is supported by research from stockbroking veterans EL&C Baillieu, who predict that private equity players looking to crack Australia’s wealth market will have eight potential targets, including Janus Henderson, Pendal, and Australian Ethical.
“We estimate over 65 per cent of the retail wealth management market may change ownership over the next 12 months, leading to significant changes in the way the sector operates and how services are delivered,” EL&C Baillieu analysts said.
“Moreover, private equity groups are likely to own at least 30 per cent of the sector (and maybe up to 50 per cent), leading to further change.”
Ms Silva also anticipates that ESG and ethical investing will continue to be a growth industry for Australian finance as the world continues to feel the physical impacts of COVID-19 and climate change.
“The focus on corporate social responsibility and green investing will also continue to accelerate in 2021 and beyond, with increasing demand and expectation that asset managers do more in this space as responsible global corporate citizens,” Ms Silva said.