2007 to top 2006's record-setting pace for investment firms: Putnam Lovell. Thanks to private equity's enthusiasm for fee-based investment businesses, the trend among fat-cat financial-service companies to ditch underperforming asset-management units (also known as focusing on "core" operations), consolidation in the retail fund space and a keen interest in capturing wealth-management market share, Putnam Lovell NBF predicts that 2007 will see unsurpassed merger and acquisition activity in the asset management space.

Like last year, only more so

"The strategic catalysts reshaping asset management for the next quarter-century will exert even greater strength during 2007, as fund managers grapple with more onerous product development demands and find themselves buffeted by rapidly changing industry dynamics," says Ben Phillips, New York-based Putnam Lovell's head strategist. "Demands for absolute return solutions will continue to fuel record interest in alternative-investment managers of all stripes, and cross-border transactions will grab more headlines in the months ahead."

The investment industry had a hectic year in 2006, with acquisitions breaking new ground in terms of number of transactions, disclosed deal values and assets changing hands. In all last year, 189 deals were struck, as compared to 143 in 2005 and 159 in 2004 -- and more than a quarter of the deals announced last year involved alternative investors. The value of assets acquired came to $2.646 trillion, almost double the previous record achieved in 2000. Aggregate disclosed deal value came to $43.8 billion in 2006, up from the previous record of $30.9 billion in 2000.

Last year also saw the largest ever investment management deal, going by acquired assets and disclosed deal value: the Bank of New York 's acquisition, in December, of Mellon Financial for $17.6 billion. That broke the previous record set earlier in the year when BlackRock's pledged $9.6 billion to secure Merrill Lynch 's fund-management business.

Meanwhile a persistent gap in valuation between quoted companies and private-market asset management transactions has spurred an interest in public listing, creating an IPO pipeline likely to rival the record 10 money management company flotations worldwide in 2006.

''Nevertheless, private-market transactions continue to represent more than 95% of the M&A activity in the global asset management industry,'' says Phillips. ''Most fund managers remain allergic to the regulatory burdens and other demands associated with a public listing.'' -FWR

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