Why Amvescap Should Break Up

Why Amvescap should break-up - at www.moneyweek.com - the best of the international financial media

Anglo-US fund manager Amvescap has parachuted in a new chief executive to try and fend off tentative bids from Canada's CI Financial. And the new CEO, Martyn Flanagan, will have his work cut out for him. He may have a steady reputation behind him having worked as president of Franklin Resources, the world's largest quoted fund manager, where assets under management grew by some 12% per year under his command yet Amvescap's struggling business has long since underperformed, says Lex in the FT.

So why has Amvescap performed so poorly? In defence of the fund manager, at least the group is not the only struggler in the sector. In fact, the sector is currently "abuzz with takeover activity", with both Deutsche Bank selling off a part of its business and Citigroup dumping the fund management business altogether, says Christopher Hughes on Breakingviews.com. That's because, following the rise of hedge funds, the traditional fund management industry is feeling increasingly squeezed. Moreover, as investors switch out of equities and into bonds, margins are being eroded even further, as fixed-income funds pay lower fees.

Amvescap is further under siege because it is the product of "several badly integrated Transatlantic deals", and as a result, it needs breaking up, says Hughes. It's the ideal opportunity for an acquisitive British fund manager, and as a result is rather vulnerable at the moment. Yet if you do buy its shares, buy only on takeover rumours: the group's shares already trade on 17 times estimated 2006 earnings, says Lex. In comparison to its rivals, that "looks expensive".

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