Managers of funds scramble to find suitors

The Jupiter Tyndall deal will not be the last,
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The Independent Online
Heinz Hockmann is not used to such attention. For the past few months, since it became known that Commerzbank was negotiating to buy Jupiter Tyndall, the German bank's head of asset management has had one British fund manager after another throw himself on his favour. "I would never have believed it, but it feels like nearly everyone in the UK is up for sale," he says.

Yesterday, Commerzbank clinched the deal with Jupiter, paying £169m for its entrance ticket into the lucrative, but closely fought, UK fund management business. There are likely to be many more marriages and purchases to come.

The entire financial services industry is in upheaval as the pressures of internationalisation and intense competition force increased concentration.

"Jupiter Tyndall is just a foretaste. You are going to see a lot more change, especially when the big life and composite insurers realise one way out of their current problems is to expand into asset management," says Iain Watt, managing director of Edinburgh Fund Managers.

On the face of it, it appears strange that so many fund managers should be touting for new partners. It is, after all, a hugely attractive business, earning good profits year in, year out, riding smoothly over turbulence in the financial markets.

But this very attractiveness is part of the problem. A lot of the investment banks are keen to win a slice of the action, while the demands placed on fund managers in an increasingly global and competitive enviroment are forcing changes.

Fund management is the ideal business for the brilliant individual, starting out with a few million pounds from family and friends, a book-keeper and a part time secretary. That is how John Duffield, chief executive of Jupiter Tyndall, began a decade ago. But success brings its own problems, because if you decide not to remain a niche player, the middle ground for fund managers has become increasingly uncomfortable. The business in Britain is dominated by a few big players: Gartmore, Mercury Asset Management, PDFM and Schroders together manage an estimated 40 per cent of all pension funds, where the real money lies.

Nigel O'Sullivan of the actuaries Bacon and Woodrow says: "Critical mass has become all-important. New money tends to go to the big funds, those with international coverage and global outlets."

Pension fund trustees, the actuaries and advisers who run the pension fund business, are becoming more demanding. "They walk in the door and expect to see huge quantities of people running around, teams covering all areas of the business. For a middle-ranking firm, it is difficult to find the resources to build this sort of capacity," says Mr Duffield. "I realised we needed a big, resourceful partner behind us, with international connections."

The difficulties have been compounded by the Barings disaster, which has focused the minds of pension funds and big investors on the risks of dealing with players that do not have a financial fortress behind them. These pressures proved irresistable for Jupiter Tyndall, just as they did last year for another highly successful fund management firm started by a brilliant individual - Stewart Newton - who found the problems too much to handle alone. Newton Fund Managers joined up with the Royal Bank of Scotland.

Few middle-sized managers have broken into the major league. Gartmore, under its chief executive, Paul Myners, did so only after a long haul.

There are, however, countless others still inhabiting that uncomfortable ground, earning good profits but acutely aware of the pressures and the difficult choices that need to be made. Henderson typifies the problems of breaking out of the middle. The London-based group sought to rectify this yesterday by shedding its blue blood image with the appointment of a new chief executive and four other "young Turks'" to the board. Dugald Eadie, a Glaswegian actuary who was poached from WM Company in December, promises sweeping changes as chief executive.

But the list does not end there. For the dissatisfaction, and the need to gain big financial backing, extends to the summit of UK asset management. The wish of Mercury Asset Manangement to find a stronger partner than SG Warburg is an open secret; Schroders could well be in a similar position.

But even as they offer themselves, fund management businesses are aware of their attractiveness. They occupy the strategic high ground in a growth business, and have unrivalled experience in international equity investment.

For many continental banks, which have traditionally operated in a bond culture, acquiring this expertise is worth a lot. At least Commerzbank felt that way. At present, it is the high prices that stand in the way of a rush of mergers and acquisitions. But even price may no longer deter those determined to join the fund management crowd. "The fact is that there are only seven or eight good fund managers that are not owned by someone, and the number is diminishing," says Iain Watt.

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