‘Scale wins’ — Investment companies face more consolidation after Morgan Stanley-Eaton Vance deal, market analyst says
More money management mergers are coming.
That was market analyst Todd Rosenbluth’s assessment of the financial services industry after Morgan Stanley agreed to buy investment management company Eaton Vance in a $7 billion cash-and-stock deal just a week after closing its acquisition of E-Trade.
With actively managed funds losing clients, exchange-traded funds competing aggressively on cost and issuers in need of assets, Rosenbluth said it wouldn’t be surprising to see more consolidation among money managers.
“Scale wins,” Rosenbluth, who is senior director of ETF and mutual fund research at CFRA Research, told CNBC’s “ETF Edge” on Monday.
“You need to be able to compete at an aggressive enough price to get investor attention,” he said. “At some point, the asset managers are going to need to lower their fees for mutual funds in order to realize that money is shifting towards ETFs.”
The unusual thing about the Morgan Stanley-Eaton Vance tie-up is that neither firm has an ETF presence, Rosenbluth said.
“You would think that they would want to be a part of the growing party of $5 trillion and counting of ETF assets,” Rosenbluth said.
“The sweet spot for Eaton Vance is twofold: they’ve got ESG-oriented mutual funds through Calvert and they’ve got municipal bond mutual funds that are held more by mom-and-pop investors that are relatively loyal,” he added. “But it’s a bit surprising that Morgan Stanley is just not going where the puck is headed, towards the ETF industry.”
But Morgan Stanley may not need ETFs to hold its own, said Ed Rosenberg, senior vice president and head of ETFs at American Century.
“You just don’t need ETFs now if you’re Morgan Stanley,” he said in the same “ETF Edge” interview, adding that larger companies often have to face numerous hurdles to launch new products or structures.
“I think it’s just the time for them just to get through all of their hurdles, to make sure that they check all the boxes. Who knows?” he said. “But I suspect you’re going to see not just companies like Morgan Stanley, but a lot more firms launching ETFs that haven’t in the next five years than you saw in the past five years.”
