This is the seventh acquisition for Foster Denovo in just over a year, now with 14 offices across the UK. Last autumn, the company acquired Brian Mole, 80Twenty and Rosemount after expanding with Wade Financial, Creative Financial Solutions and Punter Southall’s corporate advisory arm.

Verum Wealth was founded in 2015 by Tony McPhee, and was previously a joint venture with an accountancy firm. McPhee, along with team Angela Britton, Samantha McIntosh and Alison Kerr will move with the firm.

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“I have spent more than a decade building the Verum business and my team have been with me every step of the way. It is important to me that the acquiring firm is not only the right home for my clients but also offers clear development opportunities for my colleagues,” McPhee said.

“Jon Sweeney of Rosemount worked with me on the Verum investment process for many years and I have been very fortunate to be able to hear, at first-hand, from Jon about the culture and quality of the   Foster Denovo advisory business.  I took great comfort from the fact that Jon’s experience was further evidence Roger and his team really do walk the talk when it comes focusing on cultural fit.”

Roger Brosch, CEO of Foster Denovo, added: “Tony, Angela, Samantha, and Alison epitomise what it is to be a genuinely client-focused business with ambition – the cultural fit with Foster Denovo really couldn’t be any stronger. We’re delighted they’re on board and excited for what the future holds with this first addition to our Glasgow hub.”

Some British companies such as Gamma Communications, 4imprint and CVS appear in the top holdings of a number of UK small-cap funds, despite it being a broad investment universe. Not to mention, each of these companies have a market cap in excess of £1bn – not the price range most people have in mind when they picture smaller companies.

In the Rockwood Strategic trust, manager Richard Staveley will only invest in companies below £250m to keep the focus on this lower end of the market.

He says: “This industry can sometimes not think about the real world. They are telling the truth in that they are the smallest companies in relation to the largest ones. But in the real world, they are not really small.”

See also: UK small caps: Depressed for a reason, or at the cusp of a multi-year supercycle?

Indeed, the definition of what a smaller company is can vary considerably from manager to manager.

“There is no agreement on what small is – it is all relative. I don’t think there is a mis-selling scandal here, but funds must be transparent about the average size of the companies they are invested in.”

A shrinking market

A key reason why these funds have ended up holding the same stocks is because the number of smaller companies in the UK is shrinking. Valuations were spread more evenly across the market when the Numis Smaller Companies index first launched in 1987, but widespread M&A activity has meant much of the wealth is now concentrated in fewer names.

For example, the largest company in the bottom 10% of the market was worth £108m in 1987. Today, that same company has a market cap of £1.7bn.

To read more visit the February edition of Portfolio Adviser Magazine

The article stated that an initial joint venture between the two firms has been discussed, as well as a full acquisition by Amundi.

AllianzGI currently has €550bn in assets under management, according to its website, while Amundi’s assets stood at €2.2trn as of 30 June 2024.

Rumours surrounding a proposed combination began more than a month ago, according to a Reuters article published at the end of October, with the German insurer seeking to grow the asset management arm of its business.   

A spokesperson from Amundi declined to comment.

Amundi, which has grown through numerous acquisitions over the years, also agreed to purchase Alpha Associates in February this year. The asset manager, based in Zurich, provides private market, multi-manager solutions to investors.

It said there were “a number of interested parties” it was currently in contact with, and will update shareholders on the trust’s potential sale in the first quarter of 2025.

The strategic review that led to this was triggered by a group of shareholders (representing 17.3% of issued shares) applying pressure on the board to make changes in August.

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At the time, the £567m UK property fund was down 4.7% since its launch in 2017 and was trading 35.9% below its net asset value.

Non-exec chair Steve Smith consequently resigned after the shareholder intervention and was replaced by senior independent director Geeta Nanda.

The consideration of a potential sale is the board’s answer to concerns that it should be “maximising value for the company’s shareholders”.

The deal, which bring some $148bn in client assets to the table, will create a combined private credit franchise with approximately $220bn in client assets. The new business arm, which will be led by HPS co-founders Scott Kapnick, Scot French, and Michael Patterson, will offer services across senior and junior credit solutions, real estate, private placements, CLOs and asset-based finance. It will dovetail alongside BlackRock’s $3trn public fixed income business.

The purchase follows BlackRock’s belief that the private debt market will more than double to $4.5trn by 2030.

Larry Fink, BlackRock chair and CEO, said: “I am excited by what HPS and BlackRock can do together for our clients and look forward to welcoming Scott Kapnick, Scot French, and Michael Patterson, along with the entire HPS team, to BlackRock. We have always sought to position ourselves ahead of our clients’ needs.

“Together with the scale, capabilities, and expertise of the HPS team, BlackRock will deliver clients solutions that seamlessly blend public and private.”

Bank J. Safra Sarasin, which currently offers thematic equity strategies to private and institutional investors, said the purchase of the firm – including its flagship MIV Global Medtech fund – highlights its “commitment to growth in asset management with its thematic equity investing capabilities”.

MIV’s investment strategy and organisational structure will remain unchanged. Financial terms of the transaction are not disclosed.

Oliver Cartade, head of asset management and institutional clients division at Bank J. Safra Sarasin, said: “We are thrilled to welcome MIV Asset Management into the J. Safra Sarasin Group. This acquisition aligns perfectly with our strategic vision to strengthen our thematic equity offerings and underscores our commitment to providing clients with unparalleled investment opportunities.

“MIV’s exceptional team and proven track record will be instrumental in driving our growth and innovation in the thematic investing space.”

Christoph Gubler, senior portfolio manager and CEO of MIV Asset Management, added that the firm is “excited to become part of the J. Safra Sarasin Group to ensure the long-term success of our investment strategy in the best interest of investors”.

“We look forward to continuing our success story as part of the J. Safra Sarasin Group,” he said.

On Monday (25 November), the Apax XI fund – a global buy-out fund which AGA is a limited partner of – reached an agreement to acquire the business. The purchase, which remains subject to “customary closing conditions”, will see the company subsidiary become a standalone UK accountancy business rebranded as S&W.

See also: Apax Global Alpha to invest £24.4m as part of Veriforce acquisition

According to the announcement, Apax sees the mid-market accountancy and advisory space as “the ideal place to invest as increased regulation and conflicts make the Big Four less competitive in servicing the mid-market”.

“Within this market, Apax viewed S&W as the ideal UK platform to back because of its brand heritage, high quality service offering, deep talent pool and it has demonstrated a track record of growth,” the firm said.

Apax added it aims to “support the newly-branded S&W on its growth journey”, hoping to “cement its place as a leader in the mid-market space”.

“There is an opportunity to improve its already strong client offering through new go to market strategies, cross-selling and further investment in technology,” it continued. “There is also a meaningful opportunity to unlock strategic M&A in what is a fragmented market.”

As part of the deal, Sanlam’s £17bn of assets under management will fall under the control of Ninety One when the transaction is finalised in March next year.

It will also take over management of Sanlam Investments UK, though this branch of the business will remain under the ownership of Sanlam Group.

In turn, Sanlam will take a 12.3% stake in Ninety One’s shares.

See also: PwC: 81% of wealth managers are eyeing up consolidation or M&A

Both firms were founded in South Africa, and it is hoped this new deal will allow the companies to solidify their position in the region.

Ninety one said the deal would “expand its market reach” into “savings pools outside the normal reach of the Ninety One,” while also allowing it to “accelerate the expansion of its international private credit offerings”.

Hendrik du Toit, founder and CEO of the firm, said: “This agreement will give us the opportunity, as leaders in our respective markets, to create additional value for our stakeholders. We are making a substantial investment in the future of South Africa.”

The 521 asset managers and institutional investors it surveyed largely agreed that this was necessary to expand into new markets and promote investment products ahead of the great wealth transfer.

Yet most highlighted the need to enhance their technological capabilities as a primary motive for consolidatory or M&A activity.

Almost three-quarters (73%) of respondents said artificial intelligence will be the most transformational change for the asset management industry over the next two to three years, and they want to be at the leading edge of this trend.

See also: Finsbury Growth & Income weighs up ‘tactical opportunities’ in UK stockmarket

Most (80%) of those surveyed said such technology will fuel revenue growth, with 84% saying it will improve operational efficiency, and 72% anticipating  it to improve employee productivity.

PwC’s global asset and wealth management leader Albertha Charles said: “Disruptive technologies such as AI are transforming the asset and wealth management industry and fueling revenue growth, productivity and efficiency.

“Market players are subsequently looking to strategic consolidation and partnerships to build tech-driven ecosystems, break down silos in data management, and transform their service offerings ahead of a great wealth transfer that will see mass affluents and younger audiences play a greater role in shaping service demands.”

Adopting new technologies may be crucial to staying ahead in wealth management – with PwC forecasting a 12% boost to revenues by 2028 – but many firms lack the necessary skills to do so.

See also: Abrdn appoints Xavier Meyer as investments CEO in restructure

Almost a third (30%) of asset managers currently lack the relevant talent in their workforce, so 73% of organisations said they are exploring M&A as means access skilled expertise in this regard.

Charles said there is an “urgent need for organisations to rethink investment strategies” in the face of revolutionary new technology.

“Strategic partnerships and consolidation will play a vital role in building tech ecosystems that will facilitate a greater transfer of ideas and expertise,” he added.

“Smaller players will be able to bring their systems up to speed quickly and cost-effectively, while allowing larger players to access talent and insight pivotal to growth, particularly as new and emerging technologies such as AI transform the investment management landscape.”

In a stock exchange announcement this morning (18 November), the SEGRO board confirmed the offer for Tritax had lapsed.

Last week, Brookfield and SEGRO announced they had signed heads of terms on a deal, which will see SEGRO buy six assets in the Tritax EuroBox portfolio following completion of its sale to Brookfield.

The two firms had previously placed rival bids for the Reit.

See also: BlackRock launches top 20 S&P 500 ETF

Brookfield announced it had reached agreement on a cash acquisition for Tritax EuroBox on 10 October. On 12 November, the Tritax EuroBox board unanimously recommended that shareholders vote in favour of the acquisition.

Shareholders will vote on the deal on 20 November. If approved, the deal will see Tritax shareholders receive 69p per share.

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The investment trust sector has been swept up in a wave of consolidation recently, with trusts merging at an unprecedented pace in their 156-year history. In 2024 alone, eleven consolidations have been announced so far, leaving many to wonder what is driving this activity, and if it a good thing for investors.

One key factor is the changing landscape of wealth management. As wealth managers grow into larger firms, they increasingly favour bigger investment trusts that can provide the liquidity they need. Some wealth managers struggle to recommend trust with a market capitalisation under £1bn – a threshold only 44 trusts currently meet.

But if bigger is better, why do some smaller trusts remain favourites in investor portfolios?

See also: Are platforms hampering the investment trust cost disclosure victory?

There will always be a place for more specialist mandates that, by their nature, must remain  limited in size. Trusts that focus on small-cap or even micro-cap companies, for example, require managers who can be flexible and agile. These portfolios tend to feature some of the nimblest companies – innovators and disruptors that can quickly adapt to changing market conditions.

With significant growth potential, many of these businesses are in the early stages of development, offering ample room for expansion as they grow market share and scale operations. Small-cap stocks are also less covered by analysts, making them potentially undervalued compared to larger firms and offering growth as the market recognises their worth.

These specialised mandates cater to niche investment strategies that larger trusts often struggle to replicate. As a result, investors with a strict size-based exclusion criteria risk missing out on some exceptional investment opportunities.

Additionally, smaller investment trusts tend to trade on wider discounts as larger institutional players may be reluctant or unable to invest effectively. Retail investors can therefore take advantage of such price dislocations, getting access to a top rate, well-managed but nimble portfolio at a significant discount to NAV.

See also: Asia Dragon proposes merger with Invesco Asia

Nevertheless, it has become increasingly difficult to justify the existence of trusts with a market capitalisation below £200m. This is where consolidation comes in, offering several advantages to both professional and retail investors.

Larger investment trusts benefit from increased liquidity, which makes buying and selling shares easier and more cost-effective. For institutional investors, liquidity is a crucial consideration.

Another major benefit of consolidation is cost efficiency. As trusts grow, they can take advantage of economies of scale, leading to lower fees. Many trusts have adopted tiered fee structures, passing on these savings to shareholders. For investors, lower fees are always a win.

Historically, boards have been cautious about such corporate action, but recent experience shows that many boards are now more open to consolidation, recognising the need to grow in size to remain appealing to new investors. In some cases, trusts that didn’t necessarily need to merge have still chosen to bulk up, viewing size as a competitive advantage.

It seems reasonable to assume that consolidation will continue, despite positive developments in the sector such as changes to the cost disclosure regime and a boost from lower interest rates. However, there are also reasons why the number of consolidations is likely to remain modest.

See also: Investment companies will no longer be required to produce KIDs

Merging trusts is a complicated and expensive process, often costing over £1m in professional fees. In many instances, the impact on shareholders has been alleviated by initiatives such as fee holidays. But it still means not every deal is viable or attractive. Sometimes, struggling smaller trusts are better off winding down rather than pursuing a merger.

Consolidation only makes sense when the merging trusts have similar investment strategies. If the portfolios differ too much, merging them can be difficult and unwelcome by shareholders, unless a liquidity event is included as part of the deal.

Recent consolidations have offered shareholders the option to take cash—sometimes up to 25% of the trust’s net assets—if they don’t wish to stay invested in the newly merged entity. While this adds cost to the transaction, it can smooth the process, especially when there’s a change in investment mandate.

It is important to note that shareholders must approve any consolidation, and while hostile takeovers are rare in the investment trust sector, boards can block unwanted bids by offering their shareholders a cash exit. Most consolidations, however, occur through friendly approaches, often following a strategic review.

See also: Retail investor take up of private equity trusts remains low

So, will the current wave of mergers continue? It’s likely many of the easier deals have already been completed, leaving more complex transactions for the future. But with investors increasingly demanding larger, more efficient trusts, boards may need to consider consolidation as a viable option to stay competitive.

While bigger isn’t necessarily always better, for many trusts, merging may be the key to survival in today’s investment landscape.

After transferring Asia Dragon’s assets into the Invesco portfolio, the newly combined trust will be renamed Invesco Asia Dragon.

It concludes the strategic review Asia Dragon launched in May after earlier attempts to rectify its discount had failed. Asia Dragon merged with abrdn’s New Dawn trust in November last year, but its shares are still trading 11.8% below its net asset value.

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In addition to lifting its discount, the new merger aims to lower its management fees, bringing the ongoing charges figure to blow 0.70%.

Neil Rogan, chairman of Invesco Asia, said: “For our own shareholders, apart from the lower fees and greater liquidity, it brings the scale to add to our existing buy ratings that will spur future growth.

“Our proposed discount management policy is bold, and provides the opportunity for us to break free from the persistent discounts and locked registers from which so many Asian and Emerging Markets trusts have suffered.”

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Asia Dragon was down 13.4% over the past three years, whereas the Invesco Asia made a positive return of 2.8%, beating its MSCI Asia ex Japan benchmark by 3.7 percentage points.

Fiona Yang and Ian Hargreaves, co-managers of Invesco Asia, added: “This comes at an exciting moment to invest in Asia, with valuation disparities across the region offering abundant opportunities for the active investor.

“We are delighted that the strength of our investment proposition has helped to secure this opportunity for the Company, and we are confident in our ability to continue to secure the attractive long-term investment returns that we have delivered for Invesco Asia shareholders so far.”