Cross-border mergers between global fund houses don’t happen every day. But there are several good reasons why US-based Janus Capital and the UK’s Henderson Global Investors announced on Monday they were combining to form Janus Henderson Global Investors, which will have $322 billion in assets under management.
Andrew Formica, chairman of Henderson, summed up the situation succinctly in a conference call today: “Five structural trends are top of mind – namely, rising costs; the need for distribution scale; greater fees and transparency; regulatory changes and associated costs; and the growth of passive funds. The combination is a quick response to these challenges.”
One New York-based investment industry veteran was rather starker in his assessment. “It’s a partnership of weakness,” he told AsianInvestor. “Fund issuers are getting killed by the ETF [exchange-traded fund] players. How can you sell a Janus US small-cap fund at 3% when you can buy an ETF for a third of the price?
“Products are being commoditised and it’s a race to the bottom on price,” he added. “Who wins in that situation? Only the big players like BlackRock and Vanguard [which have big passive investment arms and huge scale].”
However, Japanese insurer Dai-ichi Life, the largest Janus shareholder, has indicated its confidence in the merger. It will hold around 9% of the combined group and plans to raise that to at least 15%. Dai-ichi also plans to increase its investment in the Janus Henderson product range, post-closing, by $500 million to $2.5 billion.
Merger benefits
The Janus-Henderson deal will confer the advantage of greater scale and create a more globally consistent and diverse platform in terms of product offering, said Keith Pogson, senior partner in the Asia-Pacific financial services division at consultancy EY.
Janus brings US equity and fixed income capabilities to the table above all, while Henderson will contribute UK and European funds and alternative products (click on graph, left for more details).
There are other deals between European and US managers that would also make sense, Pogson told AsianInvestor, assuming they can resolve the cultural differences between the organisations.
Formica underscored this point during the conference call about the challenge of doing a transatlantic deal: "It's not easy; it needs to be built with shared vision, cultural alignment and shared intent."
Meanwhile, big cross-border mergers involving Asian fund houses are less likely, noted Pogson, as they don’t have the same sort of competitive pressures domestically, and there are simply not so many international players in the region.
Formica and Dick Weil, chief executive of Janus, who will serve as co-CEOs of the combined entity, were keen to stress the tie-up was a “merger of equals”. Certainly, both firms are both mid-tier international players – Janus running $195 billion and Henderson £95 billion ($127 billion).
Moreover, the board of directors and the executive committee will have equal representation from each firm, and the new company will be headquartered in London, with its primary listing in New York.
Cost reductions
This collaborative approach is beneficial because hostile takeovers can mean the acquirer pays a big premium and therefore “make the synergies work harder” through more aggressive cost-cutting, said Rob Adam, executive chairman for pan-Asia at Henderson, who will become head of Asia Pacific for the new entity.
The two firms are targeting $110 million in cost reductions by the third year after the merger, most of which is expected to come in the first year. There will be redundancies, but they are not expected to be a big component of the cost-cutting, Adam told AsianInvestor. The plans will be clearer once the merger is complete, he added, as is slated by the end of the second quarter of 2017.
Asked what role might be handed to Augie Cheh, currently Hong Kong-based president of international business at Janus, Adam (pictured above), said he did not have any details.
Asia focus
Janus Henderson will have $49 billion (15%) of its total AUM in Asia Pacific, of which Australia accounts for $24 billion, Japan $16 billion and the rest of Asia $9 billion. (There is 54% in the Americas and 31% in Europe, the Middle East and Africa.)
Asia Pacific is of particular interest from a business expansion perspective, noted Adam. “We expect that, given the region’s GDP growth, we will realise disproportionately sized growth, but we are yet to map out our plans.”
With reporting by Joe Marsh, Richard Morrow, Richard Newell, Bernadette Tio and Toby Yiu.
