The proposed merger with multi-boutique asset management business Northern Lights Capital was announced by Treasury Group on Tuesday and will see the two groups form a new business with $49.6 billion in funds under management.
A Morningstar analyst report on Treasury Group argued that while the merger will increase the geographical diversity of the business and present opportunities to leverage sales staff and client relationships, it has no impact on Morningstar’s “no-moat rating” of the fund manager.
The Morningstar ‘no-moat’ rating indicates a firm has no structural feature allowing it to “sustain excess returns over a long period of time” and that profits are “susceptible to competition”.
The report said while Morningstar likes the strategic rationale of the deal, Treasury Group is investing in funds with “relatively short histories that have witnessed strong growth”.
“While momentum is clearly behind them, investors can be less forgiving of newer funds should they begin to underperform,” said the report.
Morningstar said while the merger presents an opportunity to distribute both Treasury Group and National Lights investment products such as RARE, Aubrey, Blackcrane, EAM and Seizert, its excitement is tempered by the subscale position of Northern Lights’ WHV investment platform business.
“FUM declined $1.7 billion last year after poor performance meant the loss of two institutional mandates,” said the report.
“Management appears confident outflows have stabilised, and will target diversifying platform funds, but sub-par performance and more mandate losses will have a large impact on profit.”
The report said while Northern Lights benefits from the capabilities of the merged entity, Morningstar suspects “private investors are primarily focused on building an option to exit”.
