Morgan Stanley wants to double asset manager’s size to $1 trillion

As a wave of mergers hits the asset management industry, some analysts question whether the firm should make an acquisition

James Gorman would like his asset management division to join the $1 trillion club.

Morgan Stanley’s CEO said he wants the unit to hit that level of client assets, in response to a question about his view on the next five to seven years at a conference hosted by the Investment Company Institute in Washington. The unit — the smallest of the bank’s three major divisions — had $469 billion in assets at the end of March.

The asset-management industry has seen a wave of mergers as investors’ shift to passive strategies puts pressure on firms to increase scale and cut costs. Morgan Stanley’s business is smaller than those at rivals Goldman Sachs Group Inc. and JPMorgan Chase & Co., which both have more than $1 trillion, leading some analysts to question whether the firm should make an acquisition.

“As we all know, transactions in this space are complicated, back to the cultural issues. But we can do a number of fill-ins,” Mr. Gorman said. Asset management is “one of the most important growth vehicles we have as a firm right now. I’m very excited about it.”

In 2008, the bank had more than $600 billion in assets under management. After the financial crisis, Morgan Stanley sold its retail asset management business, which included Van Kampen Investments, acquired in 1996. “In hindsight, I’m not sure that was a great idea,” Mr. Gorman said in a Bloomberg Markets interview this year.

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Morgan Stanley has done smaller acquisitions, agreeing last year to acquire a credit-investing firm with more than $5 billion in assets. Mr. Gorman has said that scale doesn’t matter for all types of money managers, and that bespoke strategies like mezzanine financing, distressed debt and real estate can be done with fewer assets under management.

“Conventional wisdom is dead wrong,” he said in the February Bloomberg Markets interview. “Asset management is a series of many businesses, some in which scale matters a lot, some in which scale doesn’t matter at all.”

Still, the firm’s asset management business has fallen short of growth goals before. In 2014, Greg Fleming, who oversaw the unit at the time, said reaching $500 billion by the end of 2016 was achievable. The bank is still trying to hit that mark.

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