Mergers and acquisitions in the asset management industry is expected to persist at high levels in the year ahead, according to Putnam Lovell.

The firm says that the first half of 2007 was record-setting for asset management industry M&A. Buyers spent at least US$33.7 billion to purchase 114 fund management companies in the first six months of the year, acquiring almost US$1.24 trillion of assets.

By contrast, in the year-earlier period, the total number of deals was 87, while the disclosed and estimated value of transactions totaled US$13.9 billion, and the amount of acquired assets under management grazed US$1 trillion. For all of 2006, there were 191 asset management deals announced, the amount of assets changing hands totaled US$2.6 trillion, and disclosed and estimated deal value reached US$44 billion.

According to Putnam Lovell, demand for hedge funds filled up the acquisition pipeline in the first half of 2007, with sales of alternative asset managers generating almost 30% of overall acquisition activity. Private equity firms were more active than ever before, involved in deals representing US$380 billion of assets under management, a quarter of all assets acquired in the first six months.

Buyers paid an average 11.9 times EBITDA (earnings before interest, tax, depreciation and amortization), an 18-month high, to acquire privately held asset management companies, it said. Meanwhile, lofty public-market valuations encouraged alternative and traditional asset managers worldwide to explore the IPO route, it added.

Sales of investment management companies worldwide are expected to remain at historically high levels in the second half of 2007, powered by strategic buyers, it predicts, adding that market turmoil and a more challenging leveraged finance environment could temporarily cool the enthusiasm of some private equity shops for asset managers and derail IPOs.

“We expect asset management M&A activity to stay vigorous as demographic and globalization trends remain favorable,” said Ben Phillips, managing director and head of strategic analysis at New York-based Putnam Lovell. “Moreover, a turbulent market will test alternative managers as never before. Transactions involving alternative managers that blend strategy and liquidity will result in successful deals that deserve premium pricing.”