When Mike Sales predicted at the Global Investor Forum in Amsterdam last year that the industry would see further consolidation, delegates probably didn’t suspect he was talking about his own firm. The chief investment officer at Henderson Global Investors told the audience that mid-sized fund managers were not big enough to enjoy economies of scale and not small enough or focussed enough to be successful boutiques. Less than one year later, Henderson has sort of proved his point and become an example of the analysis he provided.
Henderson’s deal with TIAA-CREF, which sees the assets and teams of the respective firms in Europe and Asia combined to form a new $19 billion global investment manager, has a lot to do with Sales' point. Henderson doesn’t quite fit the bill as either a sufficiently large or boutique platform, and the main issue seems to be its capacity to co-invest and seed the funds it launches.
As the firm itself says, it is no secret that Henderson is an investment management business with a limited balance sheet from which to commit large equity co-investment into funds or for direct property deals alongside its clients. In recent years, this has placed it at a disadvantage at a time when investors have been demanded closer alignment from fund managers.
In addition to this, Henderson says that increasing regulation and the implications for capital adequacy makes the outlook even tougher for managers looking for growth, especially those lacking the access to their own source of equity. It seems that the firm is thinking of the increasing burden on investment managers flowing from AIFM directive and the associated Capital Adequacy Directive. At least, that is how regulation experts perceive it. As one Luxembourg regulation professional said, to be an AIFM, you need to have certain amount of capital adequacy as specified by the directive.
Henderson seems to be a case of a company with too small a balance sheet to make a proper fist of it in global real estate, yet is has a good and profitable business. In its partner, TIAA-CREF, it clearly has found an entity with deeper pockets as well as a client base with very little overlap.
The two companies are going to make a go of it. In the case of Henderson, though, something had to happen.