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Private markets, product diversification drive AWM deal activity
Dealmaking in the asset and wealth management (AWM) sector was more challenging in the second and third quarters of 2024, as interest rate uncertainty and the outcome of the US presidential election served as a headwind to activity . Deal volume declined from 79 announced AWM deals in the first quarter of 2024 to 70 and 63 announcements in the second and third quarters, respectively. (See chart below)
Deals continue to be driven primarily by companies’ attempts to boost revenue through expanding into new markets and products. AWM sector trends include:
- Traditional and alternative managers enhancing or expanding their product offerings into alternative asset classes. Investors’ desire for the higher returns historically generated by private investments continues to drive deals as managers seek to expand their product suite. Managers who have private credit or real assets-focused products have had more success fundraising and attracting new assets under management (AUM).
- Consolidation of wealth management businesses to access new markets, expand their service capabilities and achieve greater operating scale.
- Partnerships between banks and private credit managers, whereby banks use their customer relationships to help originate loans and then offload the risk by selling the loans into vehicles managed by private credit teams.
- Succession planning by aging founders to protect the longevity of the large-scale firms they’ve created.
Note: The primary M&A data source used in the 2025 outlook is S&P Capital IQ.
Strategic thinking
The growth momentum of private credit continues to drive deal activities in AWM. To meet increased investor demand for private credit products, many traditional asset managers as well as historically core private equity managers are using acquisitions as a strategic tool to rapidly build out private credit capabilities and market presence. Meanwhile, we see increasing private credit competition which could contribute to consolidation among existing alternative asset managers to achieve scale and efficiency. Further, alternative asset managers are expanding their strategies by adding asset-based finance capabilities to their core direct lending platforms as they diversify into areas with relatively less competition.
Additionally, private credit managers continue to partner both with insurance companies to secure permanent capital and with banks to scale lending operations. These partnerships are mutually beneficial as they provide insurance companies with access to private credit products and allow banks to better manage their risks. This value proposition should boost deal activities.
With the level of dry powder near a record high, the rapid growth of private credit provides another source of funding for M&A and leveraged buyouts . Coupled with the possibility of further Federal Reserve rate cuts, these conditions could serve as a catalyst for more dealmaking.
“We expect asset and wealth managers will continue to look to M&A to drive business growth and transformation, notwithstanding the challenging deal environment recently."
The bottom line
The expansion of private markets, diversification into alternative asset classes (e.g., private credit) and new product types (e.g., retail-oriented semi-liquid vehicles) and consolidation to achieve scale and new market access continue to drive deals in the AWM sector despite a challenging transaction environment. Private market investors’ desire for greater liquidity and the ways in which AWM managers offer it, either via the use of continuation vehicles or the development of semi-liquid products with exposure to private market investments, will be important to monitor in the coming months. We expect these trends to impact AWM dealmaking.
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