Active managers continued to gain on managers traditionally known for their index funds, while banks and insurance companies lost some ground in the client race to mutual fund companies and independent investment managers, according to Pensions & Investments' annual survey of the Top 200 pension funds.
J.P. Morgan Investment Management Inc., New York, was again the manager mentioned most often in the rosters of defined benefit plans, followed by TCW Group, Inc., Los Angeles, which was in third place in the 1993 survey. 1993's second-place manager, Wells Fargo Nikko Investment Advisors, San Francisco, dropped by 12 mentions to fall into fourth place, while Brinson Partners Inc., Chicago, climbed by the same amount, to rank third overall.
Brinson Partners also showed very sharp gains among managers of defined contribution assets. Fidelity Investments, Boston; Bankers Trust Co., New York; Wells Fargo; and Vanguard Group, Valley Forge, Pa.; were again the top four. But Brinson Partners, landing in the top 10 defined contribution managers overall for the first time, edged J.P. Morgan to land in the top five.
The hiring momentum has been on the active managers' side during the past two to three years, as they outperformed index managers as a group, said Stephen L. Nesbitt, vice president and principal of Wilshire Associates Inc., Santa Monica, Calif. But he cautioned the momentum could turn the other way with the 1994 as clients begin to digest the 1994 performance numbers.
"I expect that tide to turn. Basically 1994 will be a terrible year for active managers. From our early numbers we can see that most active managers will underperform their indices," he said. As sponsors begin receiving their year-end performance numbers, they are going to be surprised, he said. It was a bad year for investing in general and active managers as a group did not add value, said Mr. Nesbitt.
"I'm not saying there's going to be a groundswell into the index funds, but managers are going to have some explaining to do this year," he said.
Interest in global investment is leading sponsors to hire managers for broad mandates involving a combination of international and domestic products, much to the benefit of global asset managers.
Brinson was the top international manager for both defined contribution and defined benefit assets.
Capital Guardian Trust Co., Los Angeles, which had tied Brinson Partners for first place in 1993's survey among defined benefit plans, was the second international manager mentioned in 1994; J.P. Morgan was third both years.
Brinson Partners made no concerted campaign to build up market share in 1994, said Gary Brinson, president and managing partner. He chalked up most of his firm's gains to word-of-mouth referrals among sponsors seeking global asset management.
"Having the scars and bruises of having been doing that in for 15 years, we're benefiting from that thrust in global assignments," said Mr. Brinson.
Among defined contribution managers, Brinson Partners jumped from fourth place, topping Fidelity, 1993's top manager in international, and Capital Guardian. Wells Fargo, which had placed fourth among international managers for defined benefit plans and tied Alliance for second place among defined contribution plans, dropped from the top 10 in both lists.
Plan sponsors are showing a continued trend toward allocating assets to international investment, including an upward trend in emerging markets, according to research from Eager & Associates, a Louisville, Ky., marketing research and consulting firm serving investment managers. Eager's 1994 Survey of Plan Sponsors' Use of International and Global Investments found only 15% of sponsors - mainly funds bound by statutory limitations - don't plan to allocate funds to international or global mandates during the next three years.
The other 85% are either boosting allocations or fine-tuning the management of existing funds, said Glenn Davis, senior account manager. That can open new opportunities for both new and existing managers, but whether the sponsor increases the existing manager's allocation or hires a new one is very product-specific, said Mr. Davis.
The Eager study found sponsors are likely to stay with the existing manager for a traditional international fixed-income or equity or a global fixed-income allocation, but they are more likely to hire a new firm if they need a regional or country specialist or a global equity manager (Pensions & Investments, Jan. 9, p. 3).
Many plan sponsors that already have committed to the international arena are integrating international and domestic investments into a coherent global portfolio, said Mr. Davis. These plan sponsors - typically large, sophisticated funds - tend to become interested in global managers and global tactical asset allocation, said Mr. Davis.
It was among those funds that Brinson Partners saw the greatest surge in interest for its services, said Mr. Brinson. There is still a fair amount of growth possible among the plans that are just beginning to commit to international, he said, but added that overall, most of the additional business he saw in 1994 came from a combination of allocation building and strategic integration. Alliance Capital Management, New York, was the domestic stock manager mentioned most often by defined benefit sponsors, while Wells Fargo dropped to second place. RCM Capital Management, San Francisco, 1993's third, dropped to seventh place. Fidelity was again the most often mentioned domestic equity manager among defined contribution plans, but Wells Fargo overtook Bankers Trust in second place.
This year's survey showed little movement among the ranks of domestic bond managers, both for defined benefit and defined contribution assets. Pacific Investment Management Co., Newport Beach, Calif., dropped from first to third among defined benefit domestic bond managers, following J.P. Morgan and Loomis, Sayles & Co., Boston. Fidelity, was again first among defined contribution bond managers, followed by Bankers Trust and Wells Fargo.
Plan sponsors also are limiting the number of their relationships, which tends to benefit existing managers, said Wilshire's Mr. Nesbitt.
"If they have a J.P. Morgan (in their roster) and they're doing relatively well, they're more likely to hire J.P. Morgan for other things," he said.
Deerfield, Ill. were again the top five.