November 20, 2018

 Victory Capital’s announced acquisition of USAA’s $69 billion asset management arm is yet another in a slew of large asset management transactions this year, those which we have dubbed “Scale Factor” deals. As with other combinations, strategic benefits must be clear & attainable. In this case, Victory near doubles its AUM past the critical $100 billion inflection point, gains access to a high quality and loyal client base while achieving significant advantages of greater scale. In an industry where the average life of a mutual fund account is approximately 3 years and positive active organic flows are a constant struggle, combining operations to leverage both revenue and expense synergies is absolutely critical. It is all about scale, not just for the small, but for the larger managers too as firms face fee pressure, outflows to passive strategies, a challenging regulatory environment, increased costs of distribution and market volatility. We believe activity in the space will remain on similar pace as many seek for further competitive positioning and relevance.