Henderson/Janus merger raises more questions than it answers

Added 4th October 2016

Announced yesterday, the obvious benefit of the merger between Henderson and Janus will be the scale afforded to both parties, and the necessary cost savings active managers now need to survive as passive funds gain traction.

Henderson/Janus merger raises more questions than it answers

Even with combined assets under management of $322bn (£252.3bn) – comprised of $195bn with Janus and $127bn with Henderson – the firm is still relatively small when compared with industry behemoths BlackRock, Vanguard and Fidelity, each of which runs over $3trn in AUM.

While this scale will be a clear benefit, Morningstar analyst Stephen Ellis said it remains to be seen whether the merger will have any impact on their respective fund performance in order for the combined group to remain competitive.

He said: “Both firms are facing challenges in their core markets that are unlikely to be abated by the combination, with Janus now dealing with the headwinds posed by the adoption of the Department of Labor's fiduciary rule earlier this year, and Henderson mired in the uncertainty created by the Brexit.”

Morningstar said it would likely increase the fair value estimate (FVE) of Janus Capital Group, yet retain its narrow moat rating, or assessment of economic advantage, following yesterday’s merger announcement.

The research and ratings agency has been anticipating greater industry consolidation for some time as fund groups face growing pressure on fees and operational costs, yet it noted that Janus had taken the initiative in seeking a suitable partner rather than wait for market forces to take hold.

Ellis added: “It looks like Janus, in our view, preferred to start the dance early, finding a more desirable partner that could fill in gaps in its portfolio and distribution, rather than waiting around for the stage where consolidation starts to take place for consolidation's sake.”

On Henderson, Ellis said: “We assign a narrow moat rating to Henderson. We believe strong competitive advantages underpin the company's narrow economic moat. Henderson's competitive advantages include a large sticky customer base, meaningful customer switching costs and a solid brand.”

One of Europe’s largest investment managers, the company has an acquisitive track record. In April 2009, it added £8.1bn to AUM through the purchase of New Star Asset Management, followed by acquiring Gartmore in April 2011, boosting assets by £15.7bn.

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