Consolidation: it’s all about culture

Mon Mar 26, 2012


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What emerges most clearly is the importance of culture when putting together asset management businesses where the only real assets are your own people and the investors they serve


By Nick Evans

Partly by design, but mainly by accident, this issue of EuroHedge profiles the progress of the two biggest recent hedge fund M&A deals in Europe: Man’s takeover of GLG at the end of 2010 and Henderson’s acquisition of Gartmore at the start of 2011.

In both instances, what emerges most clearly is the importance of culture when putting together asset management businesses where the only real assets are your own people and the investors they serve.

In the case of Man, CEO Peter Clarke is adamant that the very different and separate cultures of Man and GLG are to be cherished and nourished rather than to be blended or forced together – and that those who say that cultural differences may stymie the strategic rationale for the combination are missing the point.

In the case of Henderson, the firm’s senior management has been quick to see that it is Gartmore’s AlphaGen brand that has the chief credibility with investors – despite all the earlier Guy/Rambourg kerfuffle – and is thus using it as the springboard for the reinvigoration of its enlarged post-acquisition hedge fund business.

The prospects for these two deals achieving their potential are helped by the fact that both of the acquiring businesses are led by people who know and understand the hedge fund business well.

Clarke has been involved in numerous M&A deals in the hedge fund space over the years, from his time as Man’s finance director and then as deputy CEO before taking over the group chief executive job in 2007.

And Henderson’s CEO Andrew Formica – who is still only 40 – is a former hedge fund manager himself, who previously ran the firm’s multi-strategy equity fund and thus also has first-hand experience of the dynamics and drivers that are peculiar to this rather idiosyncratic area of the fund management world.

Culture is, of course, a very hard thing to identify, create, define and sustain in any people business. But you know it when you see it, when you’ve got it and when you’re losing it.

And understanding, valuing and retaining it will always be a vital element of success for any firm in a hedge fund industry that, for all the institutionalisation and commercialisation of recent years, remains highly individualistic, iconoclastic and often plain maverick.

In many, if not most, successful and sustainable hedge fund businesses, that is the essence of their value. It is what creates brand power when times are good – and it is what can give firms strength and resilience when things are not going so well.

And it will be always be the key thing to maintain if – as seems increasingly likely – the asset management industry is entering a period of consolidation through acquisitions, mergers, take-ons, strategic partnerships and many other forms of business combinations.

Man/GLG and Henderson/Gartmore are the two largest deals of their type in Europe. But there have been plenty of other smaller, private deals – such as GAM recently buying Arkos in Switzerland, Principal taking a majority stake in Finisterre, Schroders taking 49% of RWC, Matrix adding Olympus Capital’s Candela fund, Avoca acquiring Liontrust’s credit hedge fund business, Northill taking over the systematic firm Wellfield, Neuberger Berman buying a stake in CFM in France – and there could well be many more to come.

For many smaller funds and firms especially, the changing dynamics of the industry are making life harder every year. Many will be looking at their options in an increasingly stark business climate where success on their own may now be looking out of reach.

For those that wish to keep going and for whom continuing to go it alone is an increasingly unattractive or unviable proposition, finding the right partner and the right way to take the business forward will be the critical challenge.

Making money and building assets are hard enough things to do as it is. But building a business structure that supports, complements and enhances the investment core of a firm is every bit as hard – and every bit as important.

So whether or not the long-predicted wave of consolidation does finally start to wash through the hedge fund industry will largely depend on whether or not firms and funds have succeeded in creating something special that makes them stand out.

And, perhaps more than anything else, that will ultimately boil down to whether or not the principals of those businesses have managed to create a culture that has value, staying power and appeal – to their people, to their investors and to their potential partners.