Fund managers positioning for 2011

The funds management industry is preparing itself for the next market cycle, with the current merger and acquisition activity a sign that some are tweaking their businesses to survive the next 12 months, according to the head of Australian Unity Investments, David Bryant.

Bryant said the recent sale of Suncorp’s funds management arm Tyndall to Nikko Asset Management, along with Westpac’s sale of Westpac Funds Management and its diversified property fund to Australian Unity, was a sign that some companies were questioning what they wanted to do with their existing businesses.

Suncorp chief executive Geoff Summerhayes said at the time that the sale of Tyndall Investments was about simplifying the business — as was Suncorp’s recent request of shareholders to approve a new non-operating holding company. The move was in part a consequence of Suncorp’s merger with Promina, according to Suncorp chairman John Story.

“People are asking whether they want to be in their existing business for the next cycle, and if they are prepared to commit people and capital to it, or do they want to be doing something different,” Bryant said.

Some businesses that were having trouble in the global financial crisis, such as Orchard Funds Management, were proving difficult to resurrect and may need to be wound down, Bryant said.

Listed investment group Cromwell abandoned its proposed acquisition of Orchard Funds Management because its major financiers did not accept the underlying value of the proposed acquisition. Orchard recently negotiated an extension of its $400 million debt with National Australian Bank and the Bank of Scotland until December 2013.

“This activity is about the validation and conviction of your business for the next cycle,” Bryant said.

It’s a good time for those businesses that don’t want to keep going to step out of the industry, but those businesses that do want to stay need to choose a different path for growth, Bryant said.