MoneyBeat: Janus Deal Lifts Hopes for Copycats -- WSJ
04 October 2016 - 6:02PM
Dow Jones News
By Chris Dieterich
Will Monday's tie-up between U.K.-based asset manager Henderson
Group PLC and Denver fund company Janus Capital Group spark a
long-awaited deal spree within an industry struggling to sell
mutual funds run by stock and bond pickers?
News of the all-stock deal on Monday pushed shares of Henderson
up 17% in London, while Janus rose 12% in New York. A raft of other
beaten-down asset-management industry stocks rose even as the
broader U.S. market inched lower, a sign that investors suspect
more deals are in the hopper.
Franklin Templeton parent Franklin Resources climbed 2%, while
shares of Overland Park, Kan., fund company Waddell & Reed
Financial rose 1.1%. The latter has seen its share price cut nearly
in half this year as investors pull money from its funds.
Other asset manager stocks, including Eaton Vance, fell.
"The trend of M&A in this industry is going to increase as
firms look to stay relevant in an increasingly challenging market
to operate vs passive products and increased regulatory scrutiny,"
wrote Daniel Fannon, an analyst at Jefferies.
But there are reasons for investors to be cautious in betting on
consolidation in the industry. While Monday's deal news "may spark
M&A discussion," the terms of the transaction are modest enough
to temper investors' expectations of big premiums, Citigroup Inc.'s
William Katz says. Analysts also agree that more deals are likely
but have mixed views on whether these will arrive sooner or later.
Both potential time frames highlight issues facing asset
managers.
Years of sluggish performance by stock pickers has helped boost
demand for lower-cost, index-tracking mutual and exchange-traded
funds. Just 14% of large-capitalization mutual funds had beaten the
S&P 500 in 2016 through August, an all-time low, according to
Bank of America Merrill Lynch. Net withdrawals from actively
managed funds this year have exceeded $200 billion, a record.
Meanwhile, nearly $150 billion in investor cash has moved to index
funds, putting pressure on firms to do deals quickly.
Analysts also expect that rules that will require stockbrokers
to act in the best interest of investors when providing guidance
for individual retirement accounts will accelerate money flows into
stock index funds. These so-called fiduciary rules are likely to
lead to increased consolidation, but not until the industry fully
understands the ramifications of the regulations, UBS analyst
Brennan Hawken wrote.
"We do not expect to see a flurry of activity until the impact
of the rule becomes more clear," he said.
A combined Henderson/Janus will oversee around $320 billion and
have footprints in the U.S., Europe, Asia and Australia. The merger
aims to save money and boost revenue by expanding global
distribution for funds run by stock and bond managers.
"Active management is at the heart of what we both do," Andrew
Formica, the chief of Henderson, told investors in a call on
Monday. Mr. Formica will serve as co-CEO with Janus's Dick
Weil.
Reaching new markets is critical for fund companies at a time
when even star managers are losing traction with investors. Since
Janus added legendary bond investor Bill Gross, the co-founder of
Pacific Investment Management Co., in 2014, Mr. Gross's Janus
Global Unconstrained Bond Fund has gathered just $1.5 billion in
assets, a sliver of the nearly $300 billion once managed by Mr.
Gross in his main fund during his run at Pimco.
Mr. Formica described the merger as "manna from heaven" for Mr.
Gross because a combined company will have more marketing resources
for his fund. The merger potentially means new beachheads for Janus
ETFs, too. Janus acquired the parent company of VelocityShares, a
$3.8 billion ETF issuer best known for its products tied to the
CBOE Volatility Index, in 2014. Janus recently debuted ETFs tied to
organic foods and fighting obesity, among other niche themes.
--Sarah Krouse contributed to this article
Write to Chris Dieterich at chris.dieterich@wsj.com
(END) Dow Jones Newswires
October 04, 2016 02:47 ET (06:47 GMT)
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