Tonight:
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The takeover of fund management group New Star by Henderson last week had been so well-flagged it could surprise no one, but it was nevertheless unusual. There are hundreds of fund management groups and thousands of retail funds in the UK —there are indeed more funds that aspire to invest in British equities than there are shares quoted on the main market of the London Stock Exchange, which has to be a definition of overcapacity in anyone's language. But fund management is not a business that lends itself to consolidation, however desirable it might be.
It is a similar pattern across Europe. The population of the European Union and the combined gross national product of its member nations are just a little ahead of that of the United States.
But the number of mutual funds and fund management groups serving the European retail market is massively more than the number which serve the domestic US.
It is also the case that the size of the average mutual fund holding in America is significantly larger than the equivalent European holding, and the charges over there tend to be lower.
This is not intended as a paeon of praise for the US retail savings industry. It has many shortcomings, not least in its failing to reach standards of governance taken for granted in Europe.
But what the industry figures do suggest is that there are far too many funds in Europe spread among too many managers. The consequence is that there are not enough economies of scale, the available fund-management talent is spread too thin, and charges to customers are too high — particularly in the context of the returns these funds tend to generate.
And there are hundreds of funds out there — launched to cash in on whatever was the fashion at the time — in which not even the management company shows much continuing interest. There are also dozens of fund management groups that lack critical mass and are unlikely ever to go anywhere meaningful. If this bear market is similar to earlier ones, it will also be the case that many fund management groups are barely profitable.
They get their fees from a levy of funds under management, so their income drops when the market drops, but their costs tend to stay the same. The additional income they get from selling to new customers also dries up because in these market conditions clients sit on their wallets.
Zombie funds and zombie fund managers tend to live on long past the time when they had any serious economic purpose. But while retail fund management is ripe for consolidation, it rarely happens because it is so hard for the acquiring firm to pay a premium to the fund manager and still make money. The spectacular and sudden nature of New Star's collapse, as a result of being overgeared when the credit crunch hit, makes it an exception.
But there is normally little of value in the fund management group. In addition, a change of ownership often works like a wake-up call to clients, and prompts them to rush for the exit, so there is often a severe attrition of funds.
The question is whether this can continue. Consolidators such as Aberdeen Asset Management, and now Henderson, have an appetite for larger firms, but mopping up the small fry is hardly worth the effort. At the same time, the possible arrival of low-cost competition from the United States in the form of Vanguard, one of its leading fund management groups, is likely to add to the competitive environment. The surprise will not be that many fund-management groups will shortly hoist the white flag but rather that they have resisted the inevitable for so long.
Long job to wind up Lehman
As if there were not enough challenges for bank directors and auditors as they seek to finalise accounts for the 31 December year end, Lehman and its collapse has thrown up another.
According to the PwC team working on the winding-up of Lehman's London business, there are some 11,000 positions with the collapsed bank that are still open — out of a total when it failed of about 120,000 — presumably because closing them out would crystallise a payment due to Lehman.
Some, like inflation swaps for pension schemes, could potentially be open for another 50 years. Looks like this liquidation could be a long job.
