Nelson Peltz’s Trian Partners has acquired significant stakes in two major asset managers with an eye toward a merger or acquisition. Such a deal would reduce the number of investment products in the asset management industry — and that's a good thing, according to Moody’s Investor Service.
The Wall Street Journal first reported on Thursday that Trian, an activist hedge fund firm, acquired 9.9 percent stakes in both Invesco and Janus Henderson Partners Group. Trian’s 13D filings confirm the news.
According to those filings, Trian thinks the asset management industry is “undergoing significant change due to a variety of competitive pressures” and will use its position to encourage management to consider mergers, acquisitions, or other types of deals.
“These are two companies that have been active acquirers,” Neal Epstein, vice president and senior credit officer at Moody’s, said by phone Friday. “That's a feature of the industry. The question is what would be gained if the two were to be combined somehow.”
The asset management industry has turned away from traditional products in favor of passive ones, resulting in “excess capacity,” Epstein said. “M&A is one way of removing capacity for the industry.”
Removing that capacity could help stabilize the industry, according to Epstein. In other words, the conditions are right for a deal.
Invesco, with its $1.1 trillion in assets under management, could absorb Janus Henderson, which manages $337 billion, according to Epstein. Invesco was the second-largest independent publicly traded U.S. asset manager as of March 31, according to Moody’s.
Trian’s 13D filing disclosing its investment in Invesco shows that Trian discussed adding Peltz and Trian partner Ed Garden to the board. The Janus Henderson filing does not show that Trian discussed this with its board. A spokesperson for Janus Henderson said via email that the company didn’t hear from Trian about the investment until Thursday.
According to Epstein, this could be evidence that Trian intends to acquire companies using Invesco. “None of this is stated as a plan, it’s just the nature of what’s been said in the filings,” he added.
Invesco, though, could face deal-making challenges. According to Epstein, its recent acquisitions and share repurchases have stretched its balance sheet.
During the second quarter of 2019, Invesco completed its acquisition of Oppenheimer Funds. As a part of that deal, Massachusetts Mutual Life Insurance Co. (MassMutual) received a 15.7 percent stake in Invesco, according to an announcement from that time. And before that, in 2018, Invesco acquired Guggenheim Investments' ETF business, according to an announcement from that time.
“We continuously evaluate opportunities to further strengthen our ability to meet client needs and enhance long-term shareholder value,” a spokesperson for Invesco said via email Friday. A spokesperson for Trian declined to comment Friday.
Janus, meanwhile, faced outflows earlier this year, according to a Moody’s note published in June.
“We continue to make significant progress to increase profitability, drive organic growth, and identify and deliver cost savings, and are committed to delivering meaningful value for shareholders,” a spokesperson said via email Friday.
[II Deep Dive: Why Nelson Peltz’s Trian Partners Is Having a Year to Forget]
Trian has had a rough year in terms of performance, Institutional Investor reported in late August. The hedge fund firm’s main fund lost a little more than 13 percent in the first half of the year, in part due to its stake in industrial food distributor Sysco.