The great consolidation: Market forces drive asset manager transactions

Rapidly evolving consumer preferences, high cost of capital and technological advancements are some of the factors continuing to fuel the consolidation trend in the financial services ecosystem. This industry saw the highest level of merger and acquisition activity, in terms of both deal count and deal value, in 2024 since the record-breaking year 2021. The estimated deal count in the fourth quarter of 2024 reached its highest point ever for a single quarter. This consolidation trend was driven specifically by the banking, insurance, and wealth and asset management sectors. 

Asset managers forced to pivot

While consolidation within the asset management sector is not a new phenomenon, it has reached unprecedented levels and shows no signs of slowing down. We expect this trend will continue far into the future, drastically reducing the total number of fund managers.

Publicly disclosed deal value for transactions of private equity sponsors consolidating with other asset managers reached a record $9 billion in 2023, rising 38% year over year, according to PitchBook. Deal volume also reached a decade high, with 78 transactions announced or closed in 2023. In 2024, M&A activity in the first three quarters had already topped the total M&A activity for 2023.

Acquisitions are enabling firms to innovate and expand their services at an accelerated rate, allowing them to keep up with rapidly evolving investor preferences and gain a larger market share of the deployable capital available. The wave of consolidation across this sector is transforming firms from smaller, autonomous practices into larger, institutionalized firms where the diversity of products offered is more appealing to investors. Fund investors have increasingly sought to consolidate their capital allocation, preferring to write larger checks to bigger managers that offer multiple investment products across their platforms. Across all alternative asset classes, investors are committing more capital to fewer funds. In general, large managers continue to outcompete their smaller peers for capital. 

Fundraising woes

Fundraising was generally seen as a bright spot among alternative asset managers of all sizes during 2022 and 2023 amid slumps in dealmaking and exit activity. However, in 2024 fundraising began to lag due to a culmination of factors. The median time to close increased to 16.2 months through the end of 2024, up from 13.8 months in 2023 and 11 months in 2022, according to PitchBook data. 

Asset managers are responding to these fundraising pressures and shifting toward attracting capital from not only traditional institutional investors but also high net worth individual investors. This is driving part of the consolidation boom as fund managers partner with, or acquire, firms with the expertise and distribution channels necessary to serve this new investor pool.

Many traditional managers do not have the infrastructure to tap into this new source of retail capital on their own. To expedite the process, they are joining forces with experienced players in this space. From the manager's perspective, these acquisitions build economies of scale that can increase their assets under management faster, thus increasing their fee-based revenue.

Diverse product offerings

More and more investment firms are offering alternative investments to keep up with the demand from investors who are seeking new products that will diversify their portfolio and increase returns. The increased appetite for alternatives and innovative products is impacting the way asset managers operate by driving acquisitions of other firms with expertise in asset classes that the acquiring firms have traditionally not offered as part of their own suite of products. Investors prefer to work with a single investment firm that can offer them products in every asset class they desire—a one-stop shop of sorts, where they can write one check for $5 million rather than five checks for $1 million.

In January 2024, one of the world’s largest asset managers, as measured by assets under management, announced its acquisition of an infrastructure manager with more than $100 billion of AUM. That same asset manager acquired a private credit manager in December 2024, bringing its combined private credit assets under management to a staggering $220 billion. We anticipate further acceleration in 2025 as more and more traditional asset managers not currently in private markets look to remain competitive and retain and attract investors.

Challenges with consolidation

A broader array of fund managers offering a variety of investment strategies and asset classes obviously benefits the investor. Depending on their priorities, they will weigh various factors at each firm such as fee structure, liquidity of investments, tax incentives, overall investment strategy, sustainability goals, etc. Investors have more bargaining power when it comes to items such as fee arrangements. Some investors may feel a strong alignment of interests between themselves and their fund managers when working with smaller firms. The dwindling pool of fund managers could negatively affect investors, leading to higher fees, reduced choices in the long run and less alignment of interests.

Additionally, merging two firms has its own set of challenges that can significantly affect long-term success of the combined organization. Reconciling factors such as risk appetites, asset allocation approaches and differing regulatory requirements can be extremely complex. Clients may have concerns about the combined firm and how their investments may be affected.

Leadership teams should consider many questions before integrating two firms, including but not limited to the following:

• How well do the firms’ investment philosophies, processes and cultures align?
• What are the long-term growth objectives of the combined entity?
• How will communication and collaboration be facilitated across teams during and after the integration?
• Do any key personnel need to be retained? What incentives or retention plans are in place?
• Are there significant differences in technology platforms?
• How will the integration of operational workflows, such as trade processing, reporting and compliance monitoring, be handled to maximize efficiency?
• What is the plan for data migration, and how will data quality and integrity be maintained?
• Are there any overlapping or conflicting client agreements, fund structures or licenses?

The future

Regardless of size and investment strategy, every fund manager should assess how this consolidation trend affects them and their long-term success. With interest rate cut expectations being lower than originally anticipated due to economic and geopolitical uncertainty, most of the challenges experienced by this sector in the past few years are expected to persist. Keeping a pulse on investor preferences—and their constant evolution—is crucial to survival.