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June 11, 2021

A Brief View on the Merger of Amundi and Lyxor From an ETF Market Perspective

by Detlef Glow.

On April 7, 2021, Amundi and Lyxor announced that Amundi is in exclusive talks with Société Générale to buy its asset management arm Lyxor for a total cash consideration of €825m. Following these negotiations, the deal was closed on June 11, 2021. Besides serving as a platform for alternative strategies, Lyxor ETF is the main target of this acquisition, since the merger would create the second largest ETF promoter in Europe.

Even as there was a rumor going on, the announcement of the possible sale of Lyxor was a bit surprising. This is because Lyxor ETF had just finalized the integration of ComStage, the former ETF branch of the German lender Commerzbank, in June 2020 after Lyxor bought the company in 2018.

As of May 31, 2021, Lyxor ETF (€89.2bn) was the third largest ETF promoter by assets under management in Europe, while Amundi ETF (€70.7bn) was placed in fifth position. Therefore, the obvious result of this merger is the creation of the new second largest ETF promoter in Europe since the combined assets of Amundi ETF and Lyxor ETF stood at €159.9bn at the end of May 2021. This is a €23.1bn lead over Xtrackers, but still far behind iShares, which dominates the European ETF industry with €516.8bn in assets under management.

Since Amundi ETF and Lyxor ETF were both on the table of top 10 ETF promoters in Europe, the merger will lead to a higher market concentration, as a new name will emerge on the list. Generally speaking, a higher market concentration is seen as bad for customers, as a high market concentration may disable the competition in the respective industry. From my point of view, the higher concentration of assets under management has no major impact on the overall European ETF market since the assets under management in the European ETF industry have been concentrated since the very beginning. In spite of this, we still witnessed that promoters faced a price war on management fees, while the overall market enjoyed an increasing number of ETF promoters and products.

As it is usual to merge funds and ETFs with a similar investment objective to unlock synergies and economies of scale, I assume that Amundi will merge several Lyxor ETFs into their respective peers in the Amundi product range.

Such a product merger leads to higher assets under management in the respective ETFs. Therefore, investors may enjoy lower trading costs and a higher overall liquidity in these ETFs, and these economies of scale may also make the respective ETFs more attractive for other investors. In addition to this, the higher assets under management may give Amundi the possibility to lower management fees, which would further increase the general competition with regards to fees and expenses in the European ETF landscape.

Even as higher assets under management and lower fees can be seen as positive factors for investors, they might be a hinderance for future competition. This is because lower fees are setting the market entry barrier for new ETF promoters higher since they need to raise more assets under management to become profitable. Nevertheless, this may only be true for standardized indices such as the MSCI World, S&P 500, FTSE 100, etc., where we already saw a race to the bottom for management fees in the past. Conversely, one can observe that promoters which offer ETFs based on indices from alternative index promoters or offer solutions in niche or market areas that need some specialization are able to maintain comparably high fee levels while gathering a sufficient level of assets under management.

Even as Amundi will be the new number two ETF promoter by assets under management in Europe after the merger is completed, Amundi can’t be sure to stay in this position since the European ETF industry is highly competitive. Therefore, it has to convince exisiting investors that the changes in ownership will have no negative impact on the product quality of Lyxor products and the other way around, as they will otherwise lose some of their assets under management to competitors.

But client retention is only one side of the coin, as Amundi ETF needs to attract new customers to maintain its position as the second largest ETF promoter in Europe. That said, we can see that Amundi and Lyxor were quite innovative with regard to the ETF strategies they launched in the past. Therefore, I would expect to see further ETF innovations coming from the combined product development teams of Amundi and Lyxor in the future.

The views expressed are the views of the author, not necessarily those of Refinitiv.

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