Private equity's function in the financial sector revolves around segmenting and managing assets, making strategic moves within the asset management industry.
Industry Consolidation Shapes Independent Wealth Management Sector in Germany and Switzerland
The independent wealth management sector in Germany and Switzerland is undergoing a transformative structural shift, characterized by increasing pressure to consolidate. This trend, evident in high-profile mergers and expansions, is attributable to a changing attitude towards private equity investors and a variegated set of factors such as regulatory requirements, demographic change, and increasing professionalization.
Karl Matthäus Schmidt, CEO of Quirin Privatbank, has announced plans to drive growth through acquisitions of independent asset managers, with initial talks already underway. Executives at Berenberg Bank have also expressed interest. Similarly, Florian Grenzebach, Head of Sales at V-Bank, notes that consolidation among independent asset managers in Germany has been under observation for several years.
One of the most common triggers for mergers is the lack of a succession plan, particularly among firms in Switzerland, where 60% of independent asset managers will need successors within the next three to five years, similar dynamics being evident in Germany. Platforms like Cinerius and HRK Lunis have entered the market to acquire and develop independent asset managers, with HRK Lunis, for instance, merging with Munich-based Huber, Reuss & Kollegen in 2023, followed by the acquisition of Hamburg-based asset manager Providens the following year.
Integration of firms comes with risk, as maintaining the entrepreneurial spirit of individual asset managers can be challenging. Cinerius offers two models: full integration or retention of the firm's own brand as part of a decentralized hub, with the goal being to ensure cultural compatibility. HRK Lunis strives to grow without losing the individuality of its advisors, allowing them to maintain their entrepreneurial freedom.
The involvement of private equity investors, such as Seven2, is a contentious issue in the industry. While some platforms like Cinerius and HRK Lunis embrace backing from investors, others remain skeptical. The concern revolves around potential short-term return targets that could undermine long-term client interests. However, HRK Lunis disagrees, stating that their experience with private equity firm JC Flowers was collaborative and constructive.
Consolidation results in a more concentrated market, with larger entities better equipped to navigate regulatory demands and offer enhanced services across a broader range of products. Growth comes from add-on acquisitions, with smaller asset managers being integrated into existing structures without losing their unique identity. Despite the momentum, consolidation is far from a foregone conclusion, with the German market remaining highly fragmented.
Despite the challenges, assets under management continue to grow, with independent asset managers in Germany averaging around 495 million euros and an average of 607 clients per firm. Firms like DJE Kapital and Flossbach von Storch, both managing billions and offering personalized service for high-net-worth clients, remain owner-managed, standing out in the market.
In conclusion, consolidation in the independent wealth management sector is more of an evolution than a revolution. Successful models balance efficiency and identity, scale and entrepreneurship. Platforms and partners like V-Bank help alleviate operational complexity for independent asset managers, enabling efficiency and innovation.
- As the independent wealth management sector in Germany and Switzerland consolidates, platforms like Cinerius and HRK Lunis are acquiring and developing independent asset managers, exemplified by the merger of HRK Lunis with Munich-based Huber, Reuss & Kollegen in 2023.
- The rising trend of consolidation in the sector is influenced by various factors, including regulatory requirements, demographic changes, and increasing professionalization, as well as the lack of a succession plan, particularly among Swiss firms where 60% will need successors within the next three to five years.
- The involvement of private equity investors, such as Seven2, is a contentious issue in the industry, with concerns about potential short-term return targets that could negatively impact long-term client interests. However, experiences with investors like JC Flowers have been collaborative and constructive, according to HRK Lunis.
- Despite the consolidation, firms like DJE Kapital and Flossbach von Storch, both owners-managed and offering personalized service for high-net-worth clients, continue to stand out in the market, demonstrating that a balance between efficiency and identity, scale and entrepreneurship can yield success in the ever-evolving landscape of independent wealth management.
