What’s Going On Here?Australian investment bank Macquarie announced it was treating itself to the acquisition of US investment management firm Waddell & Reed Financial on Thursday – and it’s not the only one splurging this holiday season… What Does This Mean?The $2 billion purchase will catapult Macquarie’s investment management business into the US’s top 25 mutual fund managers based on the $465 billion it’ll look after. And to earn that privilege, Macquarie’s paying almost 50% more for each share of Waddell & Reed than they were worth at the start of the week.
There must be something going round, because private equity-focused investment firms Dyal Capital Partners and Owl Rock Capital Partners are discussing their own merger – not just between the two of them, but with a special-purpose acquisition vehicle (SPAC) too. That would automatically list the combined company – which would look after almost $50 billion – on the stock market, as well as give it a valuation of about $13 billion. Why Should I Care?Zooming in: Ctrl, alternative, delete.
Investors have increasingly been pulling their cash out of pricey and underperforming “active” funds in favor of low-cost “passive” funds that don’t require much tinkering. That’s come as a blow to investment managers, which can’t charge as much if there’s less for them to do. Those that specialize in alternative funds, meanwhile, are probably better off: risky investments like private equity funds currently offer better returns than your garden-variety stock and bonds.
The bigger picture: Mo’ mergers, mo’ money.
The reason for this spate of deals in the investment management industry is pretty straightforward: the more money an investment manager looks after, the more profitable it should be. That’s because more so-called “assets under management” means more fees, even as costs – like analysts and technology – stay put. That extra profit should, Macquarie and the newly formed Dyal-Owl Rock hope, help them get bigger, faster – and boost their values. | 
