Buyers have warned the creation of more fund powerhouses could lead to reduced competition, performance concerns and capacity issues, although they acknowledge the benefits of economies of scale in areas like fee reductions.
Their comments come as Aberdeen Asset Management and Standard Life announced last week they have reached an all-share merger deal, which has been recommended to shareholders, to create "a formidable player in the active asset management industry globally" running over £660bn of assets.
A combined group, which will be headquartered in Scotland, would incorporate the names of both Standard Life and Aberdeen and have co-CEOs: Aberdeen CEO Martin Gilbert and Standard Life CEO Keith Skeoch.
The tie-up comes as pressure has been building on active asset managers, especially mid-sized groups, for some time as they tackle competition from passives, increased regulatory pressures and margin erosion.
This has accelerated consolidation within the sector, including Henderson's recent 'merger of equals' with Janus Capital to create a global group with AUM of $320bn.
However, fund buyers have warned about the risks involved in the creation of these supergroups, and have questioned whether better outcomes will be created for investors.
Concerns
In particular, they raised concerns about the impact on fund performance and manager autonomy as investment teams are merged into single, giant organisations.
Rory Maguire, co-founder and CEO of Fundhouse, said: "There are a few things which bother us, such as reduced competition as there will be fewer players in the market. Large size can also work against investment freedom, which is one of the biggest indicators of future outperformance."
Ryan Hughes, head of fund selection at AJ Bell, added: "I take the view that from a pure investment perspective, bigger is not always better. Very large fund groups try to do a bit of everything and do not end up being truly world class at any one thing.
"They try and cover too much ground and forget what is core to the essence of their business and what made them good in the past.
"I am not saying that will happen in this case (Aberdeen/Standard Life) but it is a problem we are seeing - a period of consolidation takes time to bed in new teams and investment processes and it creates uncertainty - good people may choose to leave and not wait for the outcome of any merger."
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Investors also flagged up issues for the future in terms of fund capacity, as M&A inevitably leads to fund rationalisations and wider distribution opportunities for a consolidated range.
Rob Burdett, co-head of multi-manager solutions at BMO GAM, said the key thing for investors to consider following a merger deal is the scalability of each fund manager's skill-set.
"This is the thing they need to get right the most because in performance terms there is often a dis-economy of scale," he said. "Trying to turn a large fund around in any market is very difficult, especially if there are illiquid conditions."
