The leading institutional money managers are receiving a smaller percentage of assets from pension funds, foundations and endowments as investors move more toward alternative asset classes and specialized managers, according to a new report from Cogent Research.
Pensions, endowments and foundations are using the 41 leading managers for 40% of their assets, down from 45% in 2011, according to the report.
“We saw some trending downward in 2011 … but this is the first time we saw a significant change in the distribution of assets,” said Linda York, practice director of syndicated research and author of the third annual U.S. Institutional Investor Brandscape report.
Institutional investors are either not aware or not confident in the capabilities of the largest managers outside of public equity management, Ms. York said.
“It requires new product development or capabilities for these asset managers,” Ms. York said in a telephone interview. “The pension market won't go away tomorrow, but it is shrinking.”
Pension funds, which use broad money managers more than non-profits do, represent 43% of the total institutions, down from 48% in 2010. Pension funds used the leading broad managers for 49% of assets in 2012, compared to just 32% for non-profits, which traditionally have much higher allocations to alternative investments.
“If the leading managers want to thrive in the market, they need to recognize the shift and establish themselves in the foundations and endowments world,” Ms. York said.
Ms. York said the desire to further diversify appears to be the largest aspect of the shift, and future asset allocation changes are geared toward moving more out of public equity into alternatives and fixed income.
Vanguard took over as the manager with the largest share of institutional assets, surpassing Pacific Investment Management Co., which finished No. 2. BlackRock (BLK) and J.P. Morgan Asset Management (JPM) remained in third and fourth and were followed by State Street Global Advisors, which replaced Dodge & Cox as No. 5 from the year before.
Vanguard was listed by non-profits as the firm they would most likely consider to use, Ms. York said.
The report is based on a survey of more than 650 senior-level investment professionals for plans with at least $20 million in assets, including 170 with more than $1 billion. Cogent also conducts a separate study for defined contribution plans.