INVESCO Ltd. this week closed its acquisition of Van Kampen Funds Inc., which the firm said that it was purchasing from Morgan Stanley in October.
The acquisition boosts Invesco’s U.S. mutual fund assets to $200 billion as of March 31, making it the 13th-largest fund management company in the country, according to Strategic Insight Mutual Fund Research and Consulting LLC. Prior to the acquisition, Invesco ranked 17th with $139 billion in assets.
Globally, the firm will manage $580.5 billion in assets — ranging from unit investment trusts to exchange-traded funds and open-end mutual funds. The company will have 5,500 employees — including 700 investment professionals — in 20 countries.
But industry watchers wonder
whether Invesco will be able to lower the fees on its funds enough to keep pace with cheaper options from its peers.
“Most of their funds’ fees are below median, but we will see if they are going to be as competitive now that they are going up against the biggest players in the industry,” said Ryan Leggio, a mutual fund analyst at Morningstar Inc.
Invesco’s management and board members are still deciding which funds will be ditched, which will merge and what the fee structures will be, but Martin Flanagan, the chief executive and president, thinks Invesco is ready to go head-to-head with the big guns of the industry.
Q. How does this acquisition make Invesco different?
A. This broadens our investment capabilities. Specifically, the equity value capability gets very strong here. The other thing is our municipal capabilities. Those are two simple examples in the U.S. Outside of the U.S., we get much stronger investment capabilities in Japan.
Q. How will you compete with the bigger players?
A. We will go head-to-head on [the] breadth and depth of our offerings. We recognize that all clients are different, so we can meet their different investment objectives. But every client doesn’t want them delivered in the same way. We have the unique ability to do it through mutual funds, commingled trusts, separate ac¬counts and ETFs.
Q. What are your top priorities, now that the deal is done?
A. We want to resolve any issues that clients may have, because you can’t go through a combination like this without some issues. We have set it up so starting on Day One, clients will get an understanding of our investment capabilities, either from our direct and internal wholesalers, marketing materials or white papers. Our wholesalers have gone through a month of training on the combined organization’s investment offerings. In September, we will launch an advertising campaign to promote the Invesco brand. This communications strategy is deep and broad and very aggressive.
Q. Many of the major fund companies have a presence in the retirement plan market. Do you plan to make a bigger push there?
A. Absolutely, we will make a bigger push into this market. You need to be successful in the retirement area if you think it’s going to grow. To me, it’s a combination of deep investment capabilities, and the other elements you need, such as retirement plans and often institutional consultants, and you need the retail capability through the transfer agencies to be competitive. We have all of those. We will have $56 billion in defined-contribution assets coming out of this, and we look at this market as a huge opportunity.
Q. Your wholesalers are selling mutual funds and ETFs. Are you worried that your ETF business will cannibalize your mutual fund business?
A. That’s not our focus. We don’t care what the outcome is. Our simple goal is to respond to the needs of the client, and we are very happy to deliver it through mutual funds, commingled trusts or ETFs. We asked ourselves the question about ETFs’ cannibalizing the mutual fund space when we bought PowerShares [Capital Management LLC], and we concluded that it’s complementary. We came to the conclusion that ETFs are a growing vehicle, so it was wise for us to get into that business.
Q. Are you looking to expand your active ETF offerings through PowerShares?
A. We have active ETFs; it’s not been a large and growing area. ETFs are not the be-all and end-all for all of people’s needs. Different vehicles are appropriate for different asset classes. I think it’s some period of time before active ETFs grow, and again, I am not clear that it’s the appropriate vehicle for all asset classes.
Q. What is your global strategy?
A. The main change for us is that we have Japan now. With that, we will continue to expand our presence by meeting clients’ needs. There has historically been an appetite for bank loans in Japan, and we feel that will continue, and we will respond to that. We are on the ground in 20 countries, with clients in more than 100.
Q. What keeps you up at night?
A. What keeps me up at night is that we don’t want clients coming to conclusions for the wrong reasons. It’s still a fragile period when you have something like what happened on May 6. And let’s call that two-thirds because of market structure topics and one-third because of deleveraging out of Europe. But we can’t lose investor confidence because of market structures in the U.S. or anywhere in the world. It’s a period of building confidence for investors through continued education of the right investment program.
Q. What are those right market structures?
A. The Securities and Exchange Commission has put forward its first idea of addressing market structures, and I think it’s pretty simple. You used to have two exchanges with the same rules in place, and the market structure was pretty clear. We now have evolved to 50 different exchanges with different rules. We have to resolve that. I would be a strong proponent, after we get ¬comments, to have a common market structure across all of the exchanges.
Q. Do you have any concerns about the financial services reform bill?
A. On a high level, I think it’s absolutely necessary that we have financial services reform. Some of the elements have been very positive, but at times, politics gets ahead of common-sense outcomes. I would make two comments. The element of transparency of derivatives makes sense, but to spin them out makes no sense at all. The same with the Glass-Steagall Act [of 1933]. You can’t put the genie back into the bottle. But you can protect depository activities through corporate structures.
E-mail Jessica Toonkel Marquez at firstname.lastname@example.org.