Philippa Gee: Why cannibalising small asset managers hurts investors

Picture the scene:  A senior team from a very large international fund management group meet to discuss their product offerings. One gap they easily identify is their lack of a strong reputation for UK Specialist investment funds, such as smaller companies or special situations.

So what do they do about this? Well the obvious route, they feel, is to snap up a small UK company which has that very profile. The team locate such a company and the purchase terms agreed.

Job done and pat on the back? Well, not as far as I am concerned.

I can understand why they might consider it, because they could then flog their products to their global audience. But I would just urge a note of caution.

Let’s use the example of a well known UK fund management firm, who had that strong specialist profile I’ve alluded to. I’m not naming names, but you can draw your own conclusions as to who I might mean.

This firm were well known for what they did. When their name was mentioned you already knew what to expect from the fund managers and what experience might be delivered to investors. That was part of why they were then acquired.

But those bright sparks at the next senior team meeting of the acquiring company decided not only to merge the investment team within its existing teams, but also to rebrand the name of the acquired firm to that of the global firm.

I can understand that this would help boost interest in the funds on a global basis and obviously trim costs down. But please (starting to shout) let’s not forget the reason why that UK firm was purchased in the first place. If you change the name of the firm from UK Ltd Specialist to Global Inc Giant, you lose that brand awareness, that goodwill and that reputation. You also run the risk of losing a fund management team who might find the increased set of investment procedures soul destroying and they end up spending less time running the fund that they love and have more time taken up in bureaucratic box ticking. So the loyal investors end up with a completely different fund to that which they invested in.

Change has to happen, I do realise that. but if you are settling down to your senior team meeting today and are talking about such an acquisition, just stop to ask what yourselves whether in the process you will damage that company and investor loyalty beyond all recognition.

Time to think again.

Philippa Gee is managing director at Philippa Gee Wealth Management