Better the Devil You Know?
(July 11, 2013) — Last year saw institutional investors take flight towards the biggest asset management brands of asset managers, with almost all of the net new inflows going to the top 10 asset managers.
The trend, spotted by the Boston Consulting Group (BCG) in its 11th annual worldwide study of the asset management industry, was most pronounced in the US, where 94% of all net new fund asset flows were captured by America’s top 10 managers.
In Europe, the push towards the top players was less intense, with just 51% of net new fund inflows going to their top 10 managers.
Drilling down further, US investors placed 73% of their active core strategy mutual fund assets in the hands of those same top 10, along with 65% of their core equity strategies assets. That ratio reached 76% for fixed income specialties, 72% for core fixed income and 72% for other specialties, such as commodities or private equity.
In Europe, although the overall trend was less pronounced, there was a drive towards the bigger asset managers for specialties–56% of new assets in fixed income specialties went to the top 10 managers, alongside 49% of other specialties.
Globally, the asset management industry achieved substantial growth after four years of relative stagnation, the report said, surpassing the pre-crisis level for the first time with a grand total of $62.4 trillion.
Of that, $30.3 trillion was in North America, $17.5 trillion in Europe and $6.3 trillion in Japan and Australia. The rest of Asia totaled $3.8 trillion, South Africa and the Middle East reached $1.2 trillion and Latin America amassed $1.5 trillion.
A second trend BCG spotted was what it called a “structural shift” in how institutions are investing: actively managed core assets are out; fixed income, specialties, such as emerging market asset classes, and what BCG called “solutions”, such as target date funds, are in.
According to the report, a quarter of managers globally experienced significant erosion of their actively managed core asset base in 2012. The problem was particularly noticeable in Europe, where 30% of managers lost 5% or more of their active core assets through net outflows.
The money flowed into solutions, specialties, passive, and alternative products–and BCG predicted that trend will continue.
In both the US and Europe, the top 10 strategies included target date funds, emerging market equities, emerging market bonds, high yield bonds, and global funds.
“In this competitive environment, many traditional asset managers have little choice but to try and identify specific areas in which they can build more relevant capabilities,” the report warned.
“The threat looms particularly large for managers in continental Europe and Asia Pacific. There, due to the smaller presence of pension funds and endowment businesses, specialties did not develop as much as in the US or the UK markets: they weren’t as relevant to mass-retail investors or insurance companies, or other institutions with restrictive investment guidelines.”
And those European and Asia Pacific managers will now find it hard to gain a foothold in specialist markets, as the gap has allowed US and UK managers to expand into their regions.
Will this trend continue into 2013? Only time will tell. The full BCG report can be read here.
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