Market Update 21st February 2020

 Pace of Active Manager Consolidations Shows No Sign Of Slowing

Bar a few mega merges, last year we mainly witnessed a consolidation of small sized asset managers. Downward pressure on pricing from regulatory changes and ever-growing inflows into cheaper passive alternatives have left beleaguered boutiques more open to the idea of merging. The industry consolidation we saw last year shows no signs of stopping this year with the focus seemingly shifting from small to mid-sized firms.

This week, Jupiter announced its intention to buy Merian Global Investors while Canadian investment giant Franklin Templeton made an unexpected acquisition of rival Legg Mason for $6.5bn. As much as Franklin boss Jenny Johnson argues that it’s an offensive move, the firm has been bleeding assets for a while now so it’s hard not to see it as anything but defensive. With the squeeze in charges and the popularity of passive instruments showing no signs of abating, this is now the new normal. Despite the increase in consolidation for smaller fund houses, it may not be enough to bring costs down to a level to compete with the largest of players nor for it to be attractive enough against passive alternatives.


JAPAN: VAT Might not have been a good idea

Japan’s economy shrank at the fastest rate since 2014 as a questionable timed tax hike, coming in amidst the trade war played a part in the downturn. Typhoon Hagibis was also another factor in annualised GDP falling 6.3 per cent last quarter. It appears that Japan hasn’t learnt from a similar sales tax raise in 2014 which led to consumers closing their purse strings and plunging the nation into recession. Last quarter had a similar theme as spending fell 2.9 per cent.

Unfortunately for the Japanese it appears things won’t get better this quarter. Worries over a technical recession which happens when an economy contracts over two consecutive quarters is rising due to the anticipated strong impact from the Coronavirus. Only a few days after the announcement, Korea also sounded the warning bell saying it must do everything it can do support the economy which was just showing signs of recovery pre-virus outbreak.


UK: Housing Market showing early signs of recovery

The dispelling of Brexit gloom coupled with the unusually warm weather this time of the year has led to house buyers flocking back into the property market. Transaction activity rose last month and with it so did property prices. Asking prices rose £2500 for the month of January alone and the average asking price for a home now stands at around £309,399 – just £40 shy off historical records.

Commercial real estate is also showing tentative signs of recovery. A few months of relative calm after a decisive victory has helped lift sentiment and whet the appetitive for further buying and selling for investors. This renaissance also appears to extend to UK commercial property fund managers. Last year saw the sector hit with almost £2bn in outflows and funds with a high exposure to the retail sector punished. This week BMO UK Property fund switched its pricing from “bid” basis which tends to happen when these funds are experiencing outflows to “offer” indicating the fund is gearing up for an acquisition.



EU: Commissioner fights against US Tech Dominance

A long running fiery battle between Google and the EU started in 2010 over accusations that the search engine was pushing rivals from search results to promote its adverts and Google Shopping service, looked to have been simmering down and heading towards a settlement in 2014. But the arrival of EU Competition Commissioner Margrethe Vestager promptly reversed this course and instead handed out $9bn in fines against Google. The former Danish finance minister has since become well known for her dogged pursuit of US tech giants culminating in Donald Trump describing Vestager as the worst person he’s met.

Despite infuriating Trump, Vestager and other EU officials this week published a new digital strategy which will rein in Silicon Valley. The new strategy will focus on fair competition, digital protection for individuals and sustainability. Fair competition will mean opening up high quality data, which are currently hogged by big tech, effectively allowing tech start-ups compete on a level playing field.