Decline of 138-year-old wealth icon shows bigger isn’t always better

The idea that bigger is better pervades much of the business world: CEOs don’t typically boast about plans to shrink the company. However, the story of a 138-year-old icon of Australian financial services shows how rapid growth through acquisitions can be a very different matter from delivering performance for shareholders.

Funds management can be highly lucrative when it’s going well, but lately this business model has been steadily eroded by pressure from two giants of the investment world: global index funds and superannuation funds. Super funds, meanwhile, are also throwing less business to external fund managers such as Perpetual. Under pressure to cut their fees, more and more super funds have become so large that it makes more sense for them to employ their own fund managers, rather than pay external managers.Perpetual’s response to this unhappy situation was to get more “scale”, by bulking up its funds under management.

Perpetual argues that it will have the scale and range of different investment styles it needs to grow “organically” . Perhaps, but there’s little doubt it is a harder environment for stock-picking businesses, even ones managing $200 billion.

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