Shares in fund management group Schroders (SDR) rose 2.1% to £34.49, following the announcement that it has acquired a 75% stake in renewable investor Greencoat Capital for £360 million. From a strategic perspective the deal makes sense on a number of levels.
First, Schroders has expressed an ambition to be a global leader in the green investment sector, and the Greencoat acquisition provides a conduit into this segment.
Greencoat pioneered large-scale renewable energy infrastructure investing in listed and private formats, delivering compound assets under management growth of over 48% a year over the last four years.
Second, the deal diversifies Schroder’s revenue base away from relatively low margin fees, (derived from their active equities business), towards a higher margin business emanating from longer duration infrastructure assets.
Finally the acquisition increases Schroders assets under management by £6.7 billion.
Stifel analyst Ian Scoulter commented: ‘With renewables being a fast growing sector, we think this type of M&A activity is not surprising and expect to see more of this both at the management company and fund level.’
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Scale the wider space in asset management space is increasingly important and is another driver of consolidation, in part to support competitiveness on costs.
Fund manager Liontrust’s recent acquisition of Majedie Asset Management for £120 million is indicative of that consolidation trend.
The deal bolstered Liontrust’s assets under management by £5.8 billion to over £42.3 billion.
Active equity fund mangers have faced increased competition from lower cost passive alternatives. This has resulted in fee pressure.
Moreover the increased costs associated with compliance and regulatory requirements have disproportionately impacted firms with sub-scale assets under management.
