Inflows play little role in 5.5% hike in worldwide institutional AUM
Money manager assets rose modestly in 2014, due more to market gains than net inflows.
Worldwide institutional assets of the 500 largest firms grew 5.5% in 2014 to $37.1 trillion, Pensions & Investments' annual money manager survey shows.
Actual net inflows during the year were in the zero-to-1% range, said Kevin Quirk, a founding partner of money management consultant Casey, Quirk & Associates LLC, Darien, Conn.
“If you look at the industry in general, it is not experiencing any significant new flows,” Mr. Quirk said. “Asset management firms have been (and will continue to be) dependent on capital markets in order to grow.”
He noted a maturing population in the U.S. and other developed markets means retirees are taking their money out, not putting new assets in, and there are not enough assets flowing from emerging economies to replace the lost money.
Mr. Quirk said some money managers still will be able to grow — by taking assets from other firms.
“Increasingly, there are going to be clear winners and losers,” he said.
Among the 656 firms participating in the survey, worldwide institutional assets increased 5.5% to $37.19 trillion. (Managers in the survey, while ranked on worldwide institutional assets, must have assets under management for U.S. institutional tax-exempt clients. A ranking of global managers will be published in November.)
For the year, the Russell 3000 index returned 12.53%; the Barclays U.S. Aggregate bond index, 5.97%; and the NCREIF Property index, 11.81%. International indexes did not fare as well, with the MSCI ACWI ex-U.S. returning -3.31% and the MSCI Emerging Markets index, -1.97%.
BlackRock (BLK) Inc. (BLK) retained its dominance in the P&I survey — ranking first in worldwide institutional assets, up 6% to $3.05 trillion, and U.S. institutional tax-exempt assets, which gained 7.4% to $1.15 trillion.
BlackRock has become increasingly dependent on its iShares exchange-traded funds division for its growth, and the unit delivered for the company in 2014, pulling in $100.6 billion of net inflows in 2014, topping the old record of $88.6 billion in 2008.
iShares accounted for 28.8% of firmwide revenue in 2014, up from 25.5% two years earlier, company financial filings show. When it comes to base fees generated by BlackRock's money management operations, excluding advisory and solutions fees, ETF revenue made up 33.3% of all fee income in 2014, up from 29.5% two years earlier.
Vanguard Group Inc. ranked second in the rankings, supplanting State Street Global Advisors. Vanguard's worldwide institutional AUM gained 8.3% to $1.82 trillion at year-end; in U.S. institutional tax-exempt, the firm's assets were up 16% to $853.1 billion.
SSgA, slipping to third, had $1.82 trillion in worldwide institutional assets and $826 billion in U.S. institutional tax-exempt assets.
Another strong showing in 2014 came from J.P. Morgan Asset Management (JPM), particularly in the growth of U.S. institutional tax-exempt assets: JPMAM experienced a 19.6% increase from the previous year to $329.8 billion, moving up one spot in the rankings.
The one clear loser among the top 10 firms was Pacific Investment Management Co. LLC. PIMCO entered 2014 in outflow mode, due to performance issues in its flagship Total Return Fund. By the end of the year, both Mohamed El-Erian, CEO and co-chief investment officer, and William H. Gross, co-founder, co-CIO and manager of the Total Return Fund, had left, and assets were in a rapid decline.
PIMCO's worldwide institutional assets fell nearly 17% as of Dec. 31, to $1.11 trillion.
Vanguard benefited in 2014 from its leadership as a low-fee index fund manager, said Michael Rosen, founder and CIO at Angeles Investment Advisors LLC, Santa Monica, Calif. “Passive has gained a lot of interest and money because active equity managers have had performance challenges,” Mr. Rosen said.
Martha King, managing director and head of Vanguard's institutional investor group in Malvern, Pa., said growth had been particularly strong in Vanguard's target-date funds. The unbundling of defined contribution plans had led sponsors to look at new investment options. “It has created an opportunity for us,” Ms. King said.
To a lesser degree, Ms. King said, Vanguard picked up some fixed-income assets that had been managed by PIMCO. She noted, however, that Vanguard officials made a decision not to actively pursue former PIMCO clients because officials did not want to be seen as taking advantage of the situation.
At J.P. Morgan Asset Management, where the company had $49.5 billion in net inflows in 2014, George Gatch, head of institutional and funds business in New York, attributed the gain to active management. Mr. Gatch said JPMAM was able to take advantage of increased interest in target-date funds as DC plans unbundled. He said the firm also saw strong inflows into multiasset portfolios as institutional investors looked to reduce volatility in equity strategies and generate income in a low-rate fixed-income environment.
Mr. Gatch said the firm also saw net inflows into liability-driven investing and private equity.
P&I's survey found little growth in active domestic equity strategies in 2014, with assets up 3% to $2.45 trillion. Given that equity markets were up about 10% in 2014, that means asset owners are moving away from active equities, said Luba Nikulina, Towers Watson & Co.'s global director of manager research in London.
“We have had a long recovery; at some point it will end,” Ms. Nikulina said of the 6½-year bull market.
Ms. Nikulina said 2014's equity returns came with increased volatility, and institutional investors are increasingly looking for alternatives to hedge their equity exposure.
Global equity assets, however, which included both indexed and active strategies, were up about 22% in 2014 to $568.4 billion, the P&I survey showed.
Casey Quirk's Mr. Quirk said the numbers show investors increasingly are moving away from strictly U.S. or international equity strategies in favor of a more comprehensive world strategy.
Indexed assets rose at a faster clip than active strategies in P&I's survey — up 10.8% to $3.37 trillion. Indexed domestic bonds increased the most — up 19.5% to $526.2 billion — followed by international bonds, up 22.4% to $56 billion. n
This article originally appeared in the May 18, 2015 print issue as, "Manager assets increase thanks to rising markets".