Is there "too much capacity" in the mutual fund industry? That's what several stock analysts said about the asset managers they cover. Jeff Hopson
of Stifel Nicolaus
, Bill Katz
and Craig Siegnthaler
Credit Suisse spoke together on a panel Tuesday afternoon at the MutualFundWire 2011 Influencers' Summit: See 2020
at the Mandarin Oriental in Boston.
"At this point, there's just too much capacity in the industry. We've competed away the alpha," Hopson told fundsters. "I clearly think that the golden age of the mutual fund industry is behind us, unfortunately."
"There's so much excess capacity. The industry faces slower growth with an uneven track record," Katz agreed. "I do think that the broad multiple has decayed ... Over time, you'll see a widening of the valuation gap ... between winners and losers."
So how can fundsters collectively (or as firms) climb out of this funk? All three analysts expect acquisition activity, particularly involving boutique firms or private equity, to pick up, even as banks and European companies cool off or even divest from the business. Growth, both organic and via acquisition, "all comes down to capital management," according to Katz.
"Senior management is very, very important," Siegenthaler said. "They determine three things: breadth of the product platform; ... wide global distribution, or at least distribution in areas that can help them grow, and they also determine relative performance by hiring and allocating resources ... These, in combination with the market environment, ultimately will determine your net flows."
And none of the trio talked positively about the possibility of more mutual fund firms doing initial public offerings.
"A lot of your early round investors are facing requirements to exit their positions, and there are also succession planning issues, as well as the competitive recruiting and sales benefits [to going public," Katz said, adding that he worries about the volatility of flows (and thus revenues) at smaller asset managers. "Some of these smaller shops probably should be public."
"It's a mistake for some of these companies to go public," Hopson agreed. "A story helps, but the story has to have meat behind it."
Yet some good news could come from overseas wallets. Siegenthaler pondered how an emerging, strong Chinese asset manager could "go global."
"The best way to do that is to acquire a cheap U.S. asset manager."
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