We think that there will be further M&A activity and consolidation of assets to a small number of platforms in the next five years. This is a prediction for the UK platform market but in the meantime, the largest platform by AUA in Europe (including the UK) is up for sale. Allfunds Bank is said to have attracted 18 offers, most of them from private equity firms ranging from £1.3bn to £1.7bn.
What is Allfunds Bank?
Of Spanish roots, Allfunds Bank is a B2B platform that provides open architecture to retail banks, private banks, insurance companies and other institutional clients – including D2C platforms – in multiple countries. This type of platform has a much higher significance in continental Europe than in the UK because the banking channel is the dominant force for fund distribution. To put things into UK context, wealth manager Charles Stanley and private bank C. Hoare & Co are among Allfunds’ clients here, where it competes with the likes of SEI, IFDL and the Cofunds and FundsNetwork institutional propositions.
Why such a high interest from private equity firms?
PE firms tend to look for growing companies in consolidating sectors. But most importantly, Allfunds Bank is very profitable having made about £65m in 2015. Achieving significant scale and distribution reach translates into greater negotiation power with fund groups and distributors. In the Asset Management Market Study, the FCA is positive about the ability of platforms with scale to negotiate with fund groups and the beneficial effect this could have on competition between asset managers. Other European regulators may share this view.
The AUA growth that Allfunds Bank has enjoyed in the last few years has been impressive – from £47bn in 2011 to more than £200bn currently – so the buyer will need to think about the next phase of the platform’s growth in a post-MiFID II world where rebates will be no longer the norm in some countries.
So what could be next for Allfunds Bank?
1) Same focus, further scale: this would mean a continuation of the platform’s international expansion plan. Allfunds had already said it was looking to grow in Europe through acquisitions, so it would make sense to carry on with this strategy given the relatively low penetration the platform has in some European countries.
2) Become a multichannel platform, further scale: stepping into to the adviser channel now that consolidation of advisory firms is gaining pace in Europe, particularly in the UK. We expect out-the-box platforms to try to disrupt the adviser platform market with institutional platform pricing. Allfunds might be one of these.
3) Vertical integration: a new strategy could involve moving up the value chain by adding fund management capabilities to complement the platform business. This would need to be handled carefully as independence is key in the institutional space. But UBS and BNP Paribas are examples of groups who run successful platform and asset management businesses in a number of European markets.
In any case we expect further platform M&A and consolidation in continental Europe as well as the UK. We continue our research on the European platform markets over the next months in our European Fund Distribution reports, so stay tuned to see whether we are on track to get our prediction right!