1) Wells Fargo Enters Agreement with GTCR and Reverence Capital Partners to Sell Wells Fargo Asset Management
Wells Fargo | 2/23/2021
Because… Wells Fargo’s Wealth and Investment Management (W&IM) division generated the second highest revenue in 2020 among the company’s five business segments in addition to posting the highest net income. Although net income within all five segments fell from a year ago, W&IM’s decrease was the smallest. Wells Fargo is still recuperating from the adverse impact due to illicit sales practices. While the deal, which is the largest private equity acquisition in the industry in 20 years, will hand $2.1 billion over to Wells Fargo, we are not sure divesting the asset management unit will benefit the bank in the long run. Morgan Stanley’s CEO regretted the company’s decision to sell Van Kampen in 2009, and it ended up paying a 40% premium for Eaton Vance last year. For Wells Fargo Asset Management (WFAM), the change of ownership may bode well for its future growth because it could collaborate with more distribution partners, after becoming an independent asset manager. Private equity owners, in order to increase an acquired firm’s value and sell it for a premium eventually, could also help WFAM improve technology and products.
2) Access to Guaranteed Lifetime Income Boosts Employee Confidence, Retirement Savings During Pandemic According to New Survey
PR Newswire | 2/23/2021
Because… According to the TIAA survey, 71% of employers believed their employees would be interested in guaranteed lifetime income options and 51% of employees agreed, saying they would be highly interested in an in-plan guaranteed lifetime income annuity. Despite the increased interest, the availability of guaranteed income products has remained low. Based on Callan’s 2021 Defined Contribution Survey, just 12% of plans offered some form of annuities. Plan sponsors have been slow to embrace guaranteed income solutions due to concerns over cost, portability, provider selection, and participant education. Product complexity also makes it hard for plan sponsors to understand the mechanics and evaluate inherent risks and potential benefits of the offerings. Fund firms should focus more on developing retirement income products with simpler design, lower guarantee costs, easy transferability, and greater flexibility. Since selecting the most appropriate options is a tough task for both employers and employees, the ability to provide adequate educational support will be pivotal to plan sponsors’ acceptance too.
3) Northern Trust Enters Fast-Growing European ETF Market
Financial Times | 3/1/2021
Because… Quite a few U.S.-based ETF providers have established their presence in Europe. Most recently, Global X ETFs announced the launch of its European business operation last December. Assets in the European ETF market hit the $1 trillion mark in January 2020 and surpassed €1 trillion as of year-end. Like its U.S. counterpart, the European ETF industry is very concentrated, as iShares dominated with a 45.8% market share and the top 10 providers accounted for 93.2% of the market, according to Refinitiv Lipper data. The high level of asset concentration means it is very hard for newcomers to compete with industry leaders. They have to differentiate themselves with more innovative products. A Morningstar report pointed out that thematic ETFs became very popular in 2020 with assets accelerating from €8.2 billion to an all-time high of €22.7 billion. ESG-focused ETFs also captured considerable investor attention, with assets exceeding €90 billion as of 2020, representing a 137% increase from a year ago.