Invesco Ltd. is betting $5.7 billion that active management has a bright future.
Invesco agreed to pay about that amount in a deal with Massachusetts Mutual Life Insurance Co. to acquire its OppenheimerFunds, which specializes in picking stocks and bonds especially in the international arena. At a time when many investors are deserting active funds for products that track indexes, Invesco Chief Executive Officer Martin Flanagan is convinced that active funds will continue to play a critical role in the portfolios of retail and institutional customers.
“Investors are looking for a broad range of ways to have us meet their outcomes -- it is high-conviction active management, it is passive and it is alternatives,” Flanagan said in a telephone interview.
Roger Crandall, CEO of MassMutual, agreed. “We’re convinced the entire world doesn’t go to one giant, cap-weighted index.”
Invesco shares rose more than 8 percent in pre-market trading in New York.
Industry Consolidation
The transaction is the latest consolidation in the asset management industry, which is experiencing intense pressure on revenues as investors flock to low-fee, passive index and exchange-traded funds. Several firms in the past year have sought acquisitions or mergers for scale to survive and grow, with mixed results. The deal would increase Atlanta-based Invesco’s assets under management to more than $1.2 trillion as OppenheimerFunds manages more than $246 billion in assets.
Analyst Glenn Schorr of Evercore ISI said Thursday in a note titled "A Bigger Melting Ice Cube," that the market will likely struggle “with why they should be excited about getting bigger in a product that is in secular decline" even as investors may appreciate the financial accretion and understand the benefits of scale and diversification.
Invesco, the fourth-largest manager of ETFs, will pay $4 billion in preferred shares and 81.9 million of common stock to add the primarily active manager to its offerings. The common stock is valued at about $1.7 billion, based on Invesco’s closing stock price Wednesday. The preferred shares will pay a fixed rate of 5.9 percent. The transaction is expected to close in the second quarter of 2019. MassMutual will become a significant shareholder in Invesco with about a 15.5 percent stake.
International Funds