Investor Collaboration ‘Poses Threat to Asset Managers’

Asset managers are under threat from the increasing appetite among institutional investors to club together for mandates, according to Cerulli Associates.

The asset management research firm warned that groups could lose out on business from pensions and other large investors as co-investing and collaboration become more popular.

“Common investing will diminish the number of mandate hunts if one central manager is chosen for many [funds], and exert enormous pricing pressure on managers where pension plans invest for themselves but negotiate investment terms as one flock,” Cerulli said in its latest research.

In the UK, public pensions are working on multiple collaborations in an effort to meet government demands for improved scale and efficiency. According to the Local Government Pension Scheme Advisory Board, eight pools are currently being discussed or constructed, covering between 75 and 85 of the 89 public funds in the UK and as much as £198 billion ($285 billion).

In London alone, the city’s 33 pensions are beginning to pool mandates. Cerulli’s report claimed that the creation of the London Collective Investment Vehicle could cut down the number of managers from 90 to just 20 or 30.

In Switzerland, Cerulli reported a 30% increase in assets run by “Anlagestiftungen,” which are primarily entities founded by Swiss pension funds to collaborate on asset classes including equities and real estate. Assets rose from CHF80 billion ($80.9 billion) at the end of 2011 to CHF104 billion at the end of Q3 2015.

Cerulli also highlighted international collaborations, such as Caisse de dépôt et placement du Québec’s partnership with Hermes Investment Management—the BT Pension Scheme’s in-house asset manager—to buy Eurostar.

“Managers should emphasise their value, their willingness to run segregated accounts, and offer investment advisory for direct investors,” said Barbara Wall, Europe managing director at Cerulli.

Research published 12 months ago by PricewaterhouseCoopers suggested asset managers were investigating ways of cutting costs due to margin pressures arising from the insourcing trend.

Related: How to Beat the Market: Go Big, Active, and In-House; Is ADIA a Threat to Asset Management?; Insourcing: Not All About Scale