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Traditional managers are likely to see broader alternative product offerings and asset diversification as worthy objectives, driving an increasing focus on the blending of alternative and traditional investment platforms. The largest publicly traded traditional managers continue to trade at higher P/E multiples than the largest publicly traded AAMs, suggesting that equity valuation considerations may sway AAMs to become more acquisitive in the traditional asset management space.
AAMs could undertake acquisitions of traditional managers as a way to quickly gain access to large scale distribution to retail investors, an area which has become a critical focus for growth, given the continuing shift in retirement plans to defined contribution from defined benefit.
Fitch believes that the move by alternative managers to access retail investors comes with material reputational risk. Complicated fund terms, high fees and/or underperformance could draw regulatory scrutiny and potentially hurt firms' ability to raise capital. In addition, fees based on net asset value (NAV) rather than committed capital could lead to revenue pressure and more volatility.
More blending of asset manager platforms is not without risk. Beyond the regulatory and revenue risks faced by AAMs, traditional managers could see greater balance sheet usage resulting from co-investments and seed capital. They could also face new regulatory hurdles, particularly given the need to manage liquid alternative products. Lastly, there may be distinct cultural differences between the traditional and alternative asset management firms, which would need to be carefully managed to ensure a smooth integration of one platform into another.