Large M&A transactions will return to the asset management industry in 2009, as firms consolidate and restructure in response to the financial crisis, predicts Jefferies Putnam Lovell, the financial institutions industry division of New York-based investment bank Jefferies & Company, Inc.

The firm notes that sizable asset management transactions, which were largely absent in 2008, are likely to reappear this year, “driven by distressed selling of investment divisions by commercial banks and insurers, consolidation among alternative firms, and opportunistic buying by financial players that are emerging with fewer wounds from a historic and ongoing global credit crisis.”

Based on disclosed deal value, M&A activity in the asset management business fell dramatically in 2008 from the previous year’s total of US$52.1 billion to just US$16.1 billion. Only three deals announced in 2008 exceeded US$1 billion in purchase price, compared with fifteen US$1 billion-plus transactions in 2007, it notes.

On a volume basis, the activity wasn’t so bad. Indeed, 2008 was the second most-active year on record with 217 deals compared with 242 in 2007.

The deal drought is expected to ease in the coming year. “The most active buyers over the past decade, namely commercial and investment banks and insurance companies, are now becoming sellers of, or seeking strategic partnerships for, their asset management businesses,” said Aaron Dorr, New York-based managing director at Jefferies Putnam Lovell. “We expect pure-play asset managers and private equity firms to be the biggest beneficiaries of this massive reshaping of the industry.”

The firm reports that selling by distressed financial institutions dominated the deal activity in the second half of 2008, with approximately two-thirds of all M&A activity in the period attributed to divestiture activity.

Acquisitions by private equity firms slumped in 2008, following a record 2007, the firm said. Financial buyers accounted for only 10% of disclosed deal value and 12% of assets acquired in 2008, against 34% and 30%, respectively, in the prior year, it reported.

Alternative managers accounted for a record 33% of the total number of deals in 2008, yet the pace slowed dramatically in the fourth quarter amid massive redemptions and performance woes, it said. Buyers acquired only US$13.8 billion of alternative assets in the fourth quarter, 91% below the US$151.4 billion total in the year-earlier period.

“European banks are at last facing up to their success as distributors and their failure as manufacturers of investment management services,” said Kevin Pakenham, London-based managing director. “This year, we will see the further emergence of a strong independent sector in Europe, following the well-established U.S. model.”