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Edmond de Rothschild Group: predator not prey

Edmond de Rothschild Group wants to be the little financial services company that can. The Franco-Swiss private bank and asset manager is hatching acquisition plans to double its near-$200bn under management over the next five years. 

Why not? It is a family-owned company which does not need the nod from shareholders. It has deep pockets: a supremely conservative consolidated solvency ratio implies a capital surplus of nearly SFr640m ($712.5m). 

The group plies a tried-and-tested business model. Private bank clients want to invest their wealth; asset management needs investors. Unlike bigger rivals which also have investment banks under their roof there is less risk — say — of stiffing clients with shares in a dud equity offering. Still, shunting private banking clients into funds means the latter do of course have to perform. Just ask the 1,000-odd Credit Suisse customers — including wealthy individuals — facing losses after investing in funds tied to scandal-laden Greensill Capital.

On the face of it, there should be plenty of acquisition targets. Fund management, an industry that thrives on scale, remains highly fragmented with a long tail of smaller groups. Assets under management at Edmond de Rothschild Group are one-45th those at industry heavyweight BlackRock.

Assuming the group can add leverage, $1.2bn should let it acquire a mid-tier player or two. President Ariane de Rothschild has her eye on Asia and the Middle East, but using UK listed managers as proxies suggests ambitions of doubling AUM are a stretch. Premier Miton, with £12bn ($17bn) of AUM, has a market cap of £258m ($366m); adding on a 30 per cent premium gets close to $500m.

Risks attach. This is a people industry and they can walk out the door. Net outflows can follow, as the merged Premier Miton discovered. Asia would be new terrain for Edmond de Rothschild, amplifying the risk. But in a consolidating industry, at least this family firm is well-placed to expand.

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