Are Investors for Sale? Evidence from Financial Mergers

Abstract

We study consolidation via mergers and acquisitions in the global asset management industry, using a world-wide sample of asset managers over the period 2000-2013. The merging fund management companies benefit from the merger via two channels: access to new markets and to new investment expertise. While the performance of acquiror-affiliated funds deteriorates during the merger process (mainly driven by declining returns in the main areas of expertise of the acquiror), the target company’s funds’ performance improves. Following the deal, acquiror and target companies shift the relative intensity of new fund launches towards new distribution markets (countries in which they did not have a strong presence prior to the merger), generating higher flows in new funds launched there. In addition, both acquiror- and target-affiliated funds converge in their portfolio compositions after gaining a common affiliation, consistent with the merging companies exchanging information that is valuable for investment decisions. This interpretation is supported by the way portfolio convergence takes place. In particular, acquiror funds begin investing in areas where the target used to invest prior to the merger; the reverse holds for the target funds. Furthermore, both acquiror and target funds generate their best performance in sub-portfolios associated with those newly-entered investments. Taken together, our results indicate that mergers allow acquirors to address their deteriorating performance because they allow acquirors to capture new investment flows both directly (via target distribution channels) and indirectly (via learning about new investment areas). In addition, they point to the management company’s organizational structure, and changes therein, as an important driver of learning and information acquisition for fund managers.

Keywords: Financial Mergers, Mutual Funds, Learning, Portfolio Choice, Performance.

JEL Classification: G15, G23.