BNP Paribas is set to acquire AXA Investment Managers. If successful, the deal will contain multiple risks, according to Morningstar, including fund overlaps and team instability.
Earlier this month, BNP Paribas entered into negotiations to acquire AXA Investment Managers (AXA IM). If the required conditions are met, including regulatory approval, the deal is expected to be completed in the second quarter of 2025.
According to Morningstar in a note, mergers between major asset managers have been frequent in the past 15 years as a means to expand asset bases and generate economies of scale. BNP Paribas could also benefit from AXA IM’s capabilities in alternatives, fixed income and sustainable investing.
Fund Investors
However, the deal also has a number of risks. For example, Morningstar said the takeover is unlikely to be a win for investors due to «significant overlaps», particularly in equities.
«Rationalizing the fund ranges is inevitable, and many strategies will be closed or merged,» the note said. «As for the economies of scale generated by such a merger, our experience shows that end investors rarely reap the benefits through lower management fees.»
Team Instability
Another key risk highlighted is the instability within investment teams caused by large mergers. Morningstar notes that both AXA IM and BNP Paribas Asset Management have seen various reorganizations in recent years already with the former managing to maintain stability.
«But talent attraction and retention at the investment level may prove more challenging as negotiations over the combined entity’s set of expertise and key roles take place in the coming months,» it explained. «Although AXA IM has already implemented a retention plan for a few key portfolio managers, it is unlikely that everyone will find a place in the new organization and be motivated to stay in the long term.»
Stewardship Practices
Finally, Morningstar also underlined stewardship practices as a challenge for both firms.
For example, variable remuneration linked to fund performance over one and three years is too short-term compared to best practices in the industry. Formal measures are lacking for alignment via the encouragement of managers to invest in the funds they run. The long-term interest of investors from niche thematic funds is also questionable with disparate offerings between the two asset managers.
