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Three key questions investment teams must answer before a merger

There is a wave of M&A activity rolling toward the global investment management industry. Driven by the need to increase economies of scale and lower overhead in the face of changing economic climate, 2021 is poised to be the year of the megamerger.  

The trend is ramping up on a global scale, with Franklin Templeton completing its acquisition of Legg Mason in July, rumors of a potential Invesco and Janus Henderson merger surfacing in October, Morgan Stanley announcing its planned acquisition of Eaton Vance (also in October), and Macquarie announcing this month that it plans to acquire Waddell & Reed. To catch the best glimpse of where this trend is likely to go in 2021, consider the activity we’ve seen this year in the Australian superannuation industry.

In Australia,  nearly a dozen major mergers are underway or expected to be announced in the next year, including First State Super, VicSuper and WA Super to form Aware Super; Sunsuper and QSuper; NGS Super and Catholic Super; and Media Super and Cbus. The consolidation among these organizations is being driven by regulatory pressure from the Australian Prudential Regulation Authority to lower costs and improve resiliency.

While these mergers offer a tremendous upside for organizations, the process won’t come without significant operational hurdles. Consolidation pains will be felt most acutely in how investment teams integrate their processes for managing research on internal investments and external managers.

Our discussions with merging investment organizations in recent months have revealed three common challenges that determine how smoothly the integration of investment processes goes and how much value the organization can unlock from a consolidated view of their investment research.

We have identified the three questions investment organizations must answer before merging multiple investment teams.

1. Does your organization have a plan to integrate historical research content into a single data architecture?

Merging organizations must map out a plan to harmonize historical research content under a single data hierarchy to unlock the full value of their combined intellectual capital. This requires ingesting years of historical internal research and data, both structured and unstructured, from multiple sources, creating a consolidated structure for categorizing and tagging content so it's searchable across the organization. Without a consolidated, organizational view of historical investment research, investment teams will continue to operate in silos and the newly merged organization will be unable to unlock the full value of their combined teams.

2. Will your operational and technology integration plan ask analysts and portfolio managers to change their existing investment and research workflows?

One certain way to ensure failure when merging multiple investment teams into a consolidated process is to try to force analysts and portfolio managers to change their existing routines. We’ve seen countless examples of organizations implementing new processes and systems that do not support either of the teams they are consolidating. The result is always the same: lost efficiency, reduced productivity, declining usage rates, and, ultimately, an inability by the organization to capture the full value of their investment research. Technology that supports your investment and research process must be flexible enough to support multiple teams’ existing routines and workflows instead of trying to replace them.

3. How effectively will the new organization enable investment teams to integrate their unique investment processes?

Once your investment data and systems have been integrated and normalized, your teams will need to be able to create highly customized workflows that enable them to collaborate in real time. Research content from across the organization will need to be accessible and teams will need to be able to track and review internal investments and external manager interactions instantaneously. Without research visibility, structured workflows and real-time collaboration across investment teams, organizations will struggle to unlock the full value of their research insights and investment process.  

There are numerous other hurdles that merging investment organizations will need to overcome in the months and years ahead to unlock the upside potential that increased scale promises. The three challenges highlighted here focus on how to successfully integrate two or more investment teams that bring their own data, systems, and processes to the consolidated entity. Investment organizations that address these issues early in the merger process will see immediate benefits in the form of individual analyst productivity and investment team collaboration, as well as the longer-term benefits to the organization that come with increased visibility of and control over its most important asset — the investment research that supports the construction of client portfolios.

Luis Castellanos

Luis oversees global sales at Mackey. He has more than 20 years of experience delivering technology solutions for the global asset management industry and has spent more than a decade focusing exclusively on technology developed to improve buy-side research and investment process workflows. Luis holds a BS from Franklin Pierce University.

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