Northstar and First Avenue collaboration

by admin | 28,Feb,2024 | First Avenue, In the News, Northstar, Q1 2024

The graveyard of asset management mergers is vast and populated with once great managers.

This occurs because mergers are normally initiated in board rooms and forced upon two or more investment teams without cultural, philosophical or process considerations.  In addition, the corporate merit behind mergers is to create cost synergies, and being a people business, this implies role reduction.  The cascading effect of all the above is that the teams form silos, rancid cultures develop and two good businesses collapse.

To avoid this, First Avenue’s Hlelo Giyose and Northstar’s Adrian Clayton chose to approach the idea from a completely different angle – bottom up – allowing the investment teams to decide on the merits of collaborating on research and if that worked, moving ever closer to full integration across all business units.

Our pragmatic view on the industry at the time of discussions, was this.  It has too many participants (investment firms), supplier concentration is rising (DFM’s and multi-managers), savings rates are under pressure due to a weak economy and adjustments to pension fund regulations are facilitating higher global exposure.  All these factors are conspiring to pressure the pricing power of investment managers.

Against this, a unique opportunity existed for Northstar and First Avenue to work together to create a truly South African firm. There were so many points of opportunity –

  • we could increase the depth and breadth of our research coverage without increasing costs for either firm,
  • this larger team spanned all levels of experience filling previous gaps and
  • the two businesses never competed for client or market opportunities – Northstar has predominantly been focused on the retail market, whereas First Avenue specialises in the institutional space meaning product and skill overlap was limited, the combined offering means that both companies can offer product to their respective markets that was not possible in the past – most notably fixed income and multi-asset solutions.

We are 18 months into this project and it has exceeded our expectations in terms of its efficacy.  Not only have the research teams fully integrated into one team and all sit together in one office, but so too have the distribution and operations components.  Despite both brands remaining in the marketplace, and we have decided to maintain that approach considering the separate markets in which they operate, in every other regard, First Avenue Investment Management and Northstar Asset Management is one business and an incredibly happy one at that!

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