Fund Mergers, M&As Likely to Rise

As fund companies continue to look to streamline their operations to cut costs, even with the market recently rising, they will most likely merge additional funds, experts say. Some, particularly asset managers held by banks, will look to be sold.

Already this year, fund companies have either merged 208 funds, whereas for all of 2008, the figure was 281, USA Today reports, citing figures from Lipper.

“A lot of fund companies are looking for ways to get lean and mean,” said Lipper Analyst Tom Roseen. In particular, fund companies will be scrutinizing poorly performing funds or funds with less than $500 million of assets under management; previous the bar for the minimally profitable assets under management was $50 million, said Burt Greenwald, president of B.J. Greenwald Associates. “Unless they can grow a fund’s assets to half a billion dollars, they’re going to think twice about maintaining them,” he said.

And on the heels of BlackRock buying Barclays’ asset management division for $13.5 billion, double initial bids, other broad-based financial companies are likely to consider selling their fund units for a quick profit.

“The BlackRock deal sent a signal that people are buoyant and optimistic for the fund industry, and banks are clearly motivated sellers,” Greenwald noted. In fact, there are rumors that Bank of America is considering selling its Columbia Funds, as is Lincoln Financial with its Delaware Funds, he said. “We’ve seen a smattering of banks indicate that the fund business didn’t fit with their long-term view,” he said.

Indeed, speakers heading to the ICBI Fund Forum in Monaco next week told Reuters much the same. Asset managers are looking to round out their offerings and expect to find bargains in today’s market, especially if stock prices fall again.