[ I N - D E P T H
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A S S E T
T
he asset management
industry has entered an
era of consolidation. New
powerhouses have been born out
of structural headwinds, such as
the rise of passive investing and a
continual squeeze onprofits, in a
trend which looks set to strengthen
in the coming years.
Standard Life Aberdeen, Janus
Henderson and Amundi Pioneer
are among the completed high
profile mergers the industry saw
this year.
Typically following a union of
two asset managers, the combined
entity seeks a way to achieve
economy of scale, a more diverse
family of funds, further investment
gains with the lowest possible cost
and a single workflow, and best
execution policy. But once the dust
has settled on a merger, trading and
execution businesses on both sides
of the deal face a far greater task.
Although combining trading
desks may initially sound easy
enough, there are a multitude of
factors to be considered and key
decisions to be made before trading
and execution is bound under one
business. Separate systems, differ-
ent cultures, regulatory require-
ments and policies, and workflow
of the combined trading businesses
all have to be considered after the
initial tie-up is concluded.
“When you buy a company, you
also buy their investments, trading
and execution. Most companies we
speak to tend to be very nervous
and careful about affecting the
M A N A G E M E N T
M E R G E R S ]
trading and asset management
structure of the firm they are
acquiring,” says Joshua Satten,
director of business consulting at
Sapient Global Markets.
Painful and difficult process
Technology is perhaps the greatest
challenge for asset managers look-
ing to combine trading desks after
a merger. Two desks will likely
operate different order and execu-
tion management systems to trade
different instruments according to
portfolio style and a variety of reg-
ulatory or investor requirements.
Alongside this, there is transaction
cost analysis tools, market data
and analytics, and various other
technology products and vendors
to consider.
“Merging trading desks is a very
painful and difficult process,” says
John Adam, global head of product
strategy at Portware. “The chal-
lenge is combining two technology
stacks that are specialised and built
to run funds worth hundreds of bil-
lions of dollars, it creates problems.
“The way we look at buy-side
trading entities is in terms of work-
flow, the technology isn’t an end
unto itself so it’s about recognising
alpha and maximising efficiency of
both desks. The size and scale of
orders generated by a surge in as-
sets under management generates
a truly massive amount of order
volume for those trading desks.”
After overcoming the initial
shock of a mega merger, both par-
ties are then tasked with digging
“Combining two technology stacks that are
specialised and built to run funds worth hundreds
of billions of dollars can create problems.”
JOHN ADAM, GLOBAL HEAD OF PRODUCT STRATEGY, PORTWARE
30
TheTrade
Autumn 2017
Standard Life Aberdeen
Standard Life acquired
Aberdeen Asset Management
for £3.8 billion
Deal completed August 2017
£660 billion of assets under
management
Janus Henderson
Henderson Group acquired Janus
Capital for £2 billion
Deal completed in May 2017
£257 billion of assets under
management
Amundi Pioneer
Amundi acquired UniCredit’s
Pioneer business for £3.2 billion
Deal completed in June 2017
£1.2 trillion of assets under
management
down into the nuances and vast
differences between the two desks.
For a chief technology officer
overseeing such a project, the ma-
jority of time will indeed be spent
investigating the workflows of both
shops to decide which systems will
lead the trading activities of the
combined desk.
“There is a technology hurdle in
trading where you can’t necessarily
realise the synergies and efficien-
cies straight out of the gate,” says
one veteran head of trading with
experience of such an integration
process.
“The desks have to undergo a
transition period where there can
be two different but functioning
TCA providers, EMS or OMS pro-
viders or all three, running through
different channels for a period of
time. That is inevitable; two firms
simply won’t come together and
seamlessly integrate. With a merg-