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Asset management firms to merge

Jesilyn Dendere

A NUMBER of asset management companies are likely to merge within the next few months as they battle to survive in a sector that is alr

eady crowded.

There are currently 17 asset management companies. Sources say almost half of them are already in financial problems and could face collapse if they do not merge.

In his monetary policy presentation last month central bank governor, Gideon Gono, said the asset management sector was overtraded and some firms were no longer concentrating on their core business.

“We implore institutions in the sub-sector to take up this advice or risk losing their asset management licenses on the back of inadmissible dealings,” Gono said in his monetary statement.

“An analysis of the sub-sector’s income statements shows that there is resurgence in the tendency by some institutions to rely heavily on income from non-core business,” Gono said.

“Incomes and investments under management are not enough to sustain operations.”

Gono said asset management companies were not making profits from their core businesses hence the need to consolidate.

Some asset management firms that spoke to businessdigest said it was becoming increasingly difficult to operate under the current economic conditions.

“Some of the asset managers have as little as a total of $5 trillion for their funds under management and it’s difficult to explain how they are surviving on the management fees generated by such funds,” said one investment analyst with a local asset management company. “Asset managers are only supposed to survive by growing their own book and management fees from funds under management, no margin trading and no front running.”

According to one investment analyst, most asset management companies are operating on very thin profit margins and which force them to resort on non-core business for survival.

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