Deals to add scale, and acquisitions by banks likely, Fitch says.

Consolidation in the European investment management sector is set to ramp up, amid intensifying competition and shifting distribution trends, says Fitch Ratings.

In a new report, the rating agency said that it’s forecasting significant merger-and-acquisition (M&A) activity among asset managers. Banks may buy up firms too, as they seek to deploy capital on stable, fee-generating businesses.

“Banks’ appetite to acquire investment managers will stay high as they seek fee income with low capital consumption ahead of lower interest rates and Basel III endgame rules,” it said. “This points to bolt‑on deals in asset and wealth management, especially for large and diversified banks pursuing revenue diversification away from net interest income.”

At the same time, Fitch said that it expects increased M&A among asset managers in a search for added scale, which enables them to, “defend margins, cut costs and compete for net new money flows.” 

Fund managers that, “focus on commoditized mass retail and institutional offerings or with less diversified product sets are more likely to be targets,” it noted.

Competition for distribution is intensifying too, the report noted. 

“The rise of non‑traditional products — including long‑term asset funds and European long‑term investment funds that are accessible to retail investors — is drawing alternative managers into high‑net‑worth channels historically led by traditional investment managers and banks,” it said. 

Against that backdrop, Fitch said that it expects more mergers between traditional and alternative managers, as they seek to, “broaden offerings without duplicating costly distribution build‑outs.”