In asset management, size is everything: Moody’s

“Despite having US$603 billion in assets under management (AUM) at year-end 2020, the business lacked the scale of market leaders, many of which have several trillion dollars in AUM,” Moody’s said.

Indeed, the report noted that large asset managers, such as Franklin Resources Inc. and Invesco Ltd., have recently undertaken acquisitions that have pushed their AUM to US$1.5 trillion and US$1.3 trillion, respectively.

Additionally, approximately one-third of Wells Fargo’s AUM is in money market funds.

“Money market funds, which grew substantially in 2020, especially at the start of the Covid-19 pandemic, have led asset growth, but they typically earn lower fees, and many providers have waived fees in the low interest rate environment,” the report said.

“This business may be challenged in the year ahead as long-term interest rates have begun to rise,” it noted, adding that other categories, which generate higher fees, have struggled to add assets in recent years.

The deal is a positive for Wells Fargo, the report said, as it sharpens its focus on its core banking business.

The bank will also maintain a 9.9% equity interest in the business, and will remain a large client of, and distribution partner with, its former unit, it said.

“Wells Fargo will continue to operate its large wealth management and retail brokerage business, which has significant synergies with its consumer and corporate banking businesses,” Moody’s said.