By Permira’s Co-heads of Financial Services, James Fraser and Philip Muelder
In the aftermath of the financial crisis and as a result of the rise of the internet, the financial services industry has been changing rapidly. As banks rebuild their capital reserves and divest non-core activities, a strong flow of sizeable and attractive investment opportunities are emerging in a number of sub-sectors.
The 2008 financial crisis still casts a shadow across the financial services industry. Banks continue to retrench from their pre-crash roles as financial conglomerates to focus chiefly on retail, corporate and investment banking, and unwinding their positions in services such as insurance, consumer lending, wealth and asset management, and many others. As part of this shake-out, we are witnessing far more outsourcing of bank functions such as IT, fulfilment and receivables collection that had historically been kept in-house, and we expect this trend to continue.
In short, after nearly 10 years, we are yet to arrive at a ‘new normal’ in financial services. Many of the large banks have still not gone through the necessary structural changes. As this process unfolds in the years to come, we will continue to witness a steady stream of opportunities across our core sub-sectors: wealth management, specialty insurance, specialist finance and fintech.
Our approach in action
What we are seeing time and time again are good businesses that have been starved of investment and under-managed since the financial crisis. Management teams in these businesses are frustrated because critical business decisions have been taken out of their hands by people further up the bank and have little commercial relevance for the business they are trying to build.
While the opportunity set is huge, getting to these businesses and understanding the complexities of carving them out of very large banking conglomerates is a far greater challenge requiring in-depth execution skills and market knowledge.
A good example is Tilney Group (P5, 2014), a financial planning, wealth management and investment company that we backed after a two-year courtship with Deutsche Bank. The separation allowed the business to develop and deliver its own strategy without being constrained by the politics of sitting within a larger organisation. Part of the investment thesis was to consolidate this fragmented industry, and the funds have subsequently backed the business through a series of acquisitions, including the transformational acquisition of Towry in 2016.
At a time when added levels of compliance are required and capital constraints have curtailed banks’ ability to invest in new technologies, Permira’s combination of Financial Services and Technology expertise has proved a real advantage helping businesses establish the platform they need to compete and grow.
Take Tricor (P5, 2016) (a first in Asia for the Financial Services team), a corporate services provider carved out from The Bank of East Asia. Together with our Technology team, we developed an investment thesis based on the application of technology to drive automation and expand the product range and quality of service provided to customers.
Partnering for growth
As a specialist in Financial Services, with a global network, Permira is well placed to identify those businesses within larger conglomerates with long-term growth and transformation potential. Our capacity to leverage this global network is especially important in an industry where legislation and regulatory oversight operates at a very local level. For example, the UK debt purchase market is one of the most sophisticated yet domestic of all financial services markets. We harnessed our insights and understanding of best practice in the