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Sink or swim as Perpetual faces merger

Perpetual has finally found itself a buyer after six months of talks, bids and rumours.

Since May, such illustrious names as JP Morgan, CGNU and Allianz have been linked to the Henley-based fund man-ager. But with the signing of a £1.05bn deal by US investment house Amvescap two weeks ago, the process has swung full circle, with the very first bidder becoming the last.

As the parent company of Invesco, Amvescap now faces a number of important decisions. Although it has said Perpetual and Invesco will remain separate until the end of the next Isa season, a merger looks to be on the cards for next year.

But bringing together two such different investment houses could be a messy process – a fact that is of concern to many IFAs.

Bates Investment senior analyst James Dalby says: “In the short term, mergers are never very good. There is a lot of restructuring, it can be very unsettling and staff often do not know what they are meant to be doing.

“Instinctively, I think Perpetual and Invesco&#39s funds will merge and, in the longer term, I think it will be good for the clients. But I would hope to see people like Neil Woodford and Stephen Whitaker stay.”

The two houses are not a natural match and there are areas where their fund ranges clash. Perpetual is seen as a solid manager in the UK sector, while Invesco is strong in Europe and has a better-known global brand. But across the entire range of unit trusts, the two firms overlap in 14 sectors and a merger is likely to open the door to internal conflict.

Within the equity income sector, for example, Invesco has three funds while Perpetual has its two flagship funds managed by Neil Woodford. There may be some room for fund mergers here but a star fund manager is unlikely to stay if he is not left calling the shots.

Chase de Vere investment marketing manager Ian Millward says: “It will be interesting to see how they manage this. The Perpetual income fund is a very big fund and merging it with another would not necessarily be a good thing.

“I would be surprised if they did not play to the strengths of the relative groups. Perpetual has given its fund managers free rein in the past and I do not believe the fund managers would take too kindly to having the whip cracked. I am also sure they all have plenty of money and would be happy to walk if the environment isn&#39t right. It would be a crippling blow to lose their star fund managers.”

Historically, it has been the firm making the acquisition which has taken the upper hand in directing the future of the business. But Perpetual says the two houses are to have an equal role on the integration committee.

Perpetual is reluctant to comment on the deal and its plans for the future but a spokesman says: “A team has been set up on both sides and will be meeting over the next few weeks to look to optimise the strength of both brands.”

Which of the two brand to retain will be another important issue. Perpetual is arguably the stronger brand in the UK but has seen reasonably slow performance over the past 18 months although it has picked up recently. Invesco is an up and coming brand in the UK which has fared better in the last two years.

If other mergers are an indication of which direction Amvescap may choose, it would seem likely it will ditch one of the brands altogether.

Norwich Union is phasing out the CGU brand in the UK, while Scottish Widows ditched the Hill Samuel brand a few months ago. The trick is making the right judgement.

Hargreaves Lansdown head of research Mark Dampier says: “I do not think even they know what they are going to do with the brands yet. They could run both brands and offer different classes of style with, say, Perpetual as a value house and Invesco as a growth house.

“I would not have thought they will want to lose the Per-petual brand, though. You have to ask yourself how much of that £1bn actually was for the brand.”

Speculation is also mounting as to what Amvescap will do with Perpetual&#39s Henley headquarters. Perpetual is the only major English fund manager to keep its headquarters outside London. Those working in Henley are keen on the lifestyle and likely to be reluctant to move to London. Equally, it will be difficult to persuade London-based Invesco managers to move to Henley.

But Invesco insists Henley will play an important part in its plans. Global UK chief executive Hugh Ward says: “The group has acquired a big successful business and my job is to make the business work in the best possible fashion. Keeping Henley is very important to us.

“Inevitably, there will be some fund mergers but the primary objective is to grow the business. We will look very carefully at investment style and products and try to arrive at what we see as a comprehensive range of funds.”

The merged company will be the second-biggest retail fund manager in the UK behind Fidelity. Its size will guarantee a place in the limelight but the next steps should be taken softly. A messy merger could seriously damage the Perpetual brand.



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