LONDON - PDFM Ltd. is challenging Mercury Asset Management PLC's long-standing reign as the leading manager of U.K. separate account pension assets.
As of June 30, MAM managed $62.8 billion in U.K. separate account pension assets, with PDFM in hot pursuit at $61.3 billion. Both managers are based in London.
"These two are basically the largest," said Julia Hobart, head of multinational business development at William M. Mercer Ltd., London. "I see them as joint equals."
Mercer's 1996 European Pension Fund Managers Guide, which Ms. Hobart edited, actually lists MAM as second, with $61.2 billion in U.K. pension assets. But MAM executives admitted they submitted an incorrect figure to Mercer.
The newly published guide also calls 1995 "somewhat of a watershed" year in growth in specialist management business across Europe. Specialist accounts for European, Japanese, U.S. and emerging markets equities, and tactical asset allocation saw dramatic growth during the period, the survey said.
The guide shows PDFM, a unit of Union Bank of Switzerland, is closing on MAM's heels as the top-ranked manager in the U.K. separate account pension market.
A year earlier, Mercury led the pack at $56.4 billion, with PDFM ranking second at $47.9 billion. (Three years ago, MAM had $54.7 billion in U.K. pension assets under management, compared with $34.5 billion for PDFM. Sterling's higher value at that time makes the totals appear higher.)
MAM has been the industry leader since U.K. pension funds switched to separate account management during the past 15 years.
Including U.K. pooled pension assets, MAM clearly remains on top. As of June 30, Mercury had $3.8 billion in pooled pension assets, putting its total U.K. pension assets at $66.6 billion. PDFM had $1.5 billion in pooled pension assets (excluding those in which separate account clients invest), making total U.K. pension assets of $62.8 billion.
PDFM's growth rate, though, has outstripped MAM's. PDFM's separate account U.K. pension assets under management jumped 28% during the 12-month period ended June 30. At MAM, the comparable growth rate was 11.3%, barely exceeding the average U.K. pension fund's return of 11.1%, according to The WM Co.'s All-Funds Universe.
During the past decade, PDFM has experienced a steady 15% annual growth rate in new business, said Paul Meredith, PDFM's chairman. U.K. pension assets under management have risen tenfold since 1985, he said.
Strong returns have buoyed new business.
For the one-year period ended June 30, PDFM's global balanced portfolios returned 12.1%, compared with 11.4% in the Combined Actual Performance Services Ltd.'s median (including property), while the manager's five-year figures outperformed the median fund's 11.4% return by 200 basis points. (U.K. separate-account performance data always is quoted gross of fees.)
Mr. Meredith said PDFM appears to perform particularly well in even-numbered years. While data for 1995 is not yet available, he said last year was "disappointing" as its value style was not in tune with the capital markets.
Despite PDFM's success in its home market, Mr. Meredith said the future increasingly lies overseas, including in continental Europe, where prospects for pension fund growth are greater. Mercer estimates there are more than $2.1 trillion in European pension assets, two-thirds of which are based in continental Europe.
Meanwhile, industry leader MAM has seen some softening in its pension business. Industry observers said MAM still experiences some dispersions in its returns, which have not been superlative lately. Mercury did restructure its investment teams a year and a half ago, tightening returns and improving client servicing.
MAM officials declined to comment.
Otherwise, rankings among the top 25 British managers changed little. Third-ranking Schroder Investment Management Ltd.'s assets under management shot up 32.2% to $50 billion from $37.9 billion the year before.
Meanwhile, fourth-ranking BZW Asset Management (prior to its merger late last year with Wells Fargo Nikko Investment Advisors) saw U.K. separate account pension assets rise 14.6% to $32.2 billion, while fifth-ranking Gartmore Pension Fund Managers Ltd. saw an increase of 26.5% to $29.1 billion.
The other shining success story was the 42% gain by Morgan Grenfell Asset Management Ltd., whose U.K. pension assets under management soared 42% to $16 billion.
Other strong gainers included Baillie Gifford & Co., up 22.7% to $9.2 billion; M&G Investment Management Ltd., up 24.4% to $5.1 billion; and State Street Global Advisors, up 20%, to $1.8 billion.
Two managers experienced hefty gains because of sales or acquisitions. INVESCO Asset Management Ltd. soared 73.3% to $2.6 billion, largely from the purchase of Banker's Trust Co.'s $1.5 billion passive business. And Newton Investment Management Ltd. shot up 45.2% to $6.1 billion, following its acquisition by the Royal Bank of Scotland PLC and Newton's subsequent merger with the bank's investment management subsidiary.
To no one's surprise, Henderson Pension Fund Management was the biggest loser, with U.K. pension clients assets falling 42.4% during the period to $4.3 billion.
Also suffering losses in U.K. pension assets were Prudential Portfolio Managers Ltd., declining 5.3% to $14.4 billion (and slipping from sixth to eighth place in the ranking); Cazenove Fund Management, down 4.3% to $3.4 billion; Kleinwort Benson Investment Management, off 7.4% to $2.5 billion; and Scottish Amicable Investment Managers Ltd., off 9.3%, to $1.8 billion.
Ms. Hobart, said individual changes in the rankings were less significant than how much money has clustered among the largest three and five money managers, and the gaps between the biggest managers and the next tier.
"What it's saying is there is comfort in the known names," she explained. "It also means those people at the top have produced good performance and have realized their clients' expectations," she said.
For the future, trends suggest managers will have to be very big - and thus able to take advantage of economies of scale - or be boutique operations, she said. "For the middle-ground player, I think they have to create some way of adding value," Ms. Hobart added.
Meanwhile, Mercer found strong growth in specialist mandates by European pension funds. "Over the past four years, the number of specialist mandates has more than trebled," she said.
During the past year, the number of European, Pacific Basin, Japanese and U.S. equity mandates have grown between 40% and 50% each. In addition, tactical asset allocation accounts jumped 47%, while global fixed-income mandates rose 20%, Ms. Hobart said.
But Ms. Hobart acknowledged the growth in specialist mandates might have been skewed by the higher levels of participation in the survey this year by continental European managers. In addition, many more U.S. and Far Eastern managers surfaced in the guide this year, reflecting the trend toward hiring local managers for geographic mandates.
In total, 46 new managers contributed to the survey out of a total of 165 firms. Meanwhile, 20 firms of the 139 that participated in last year's survey were not included in this year's guide.
While top-ranking managers were virtually identical in Great Britain, there were significant differences on the Continent.
In particular, the top three Dutch managers - ING Investment Management, with $16 billion; Achmea Asset Management, with $13 billion, and AEGON Levensverkering NV, with $9.3 billion - were not included in the 1995 survey.
The upshot was Wells Fargo Nikko dropped to the fifth-ranking manager of Dutch pension assets from the second - even though its Dutch pension assets under management rose $2.4 billion to $8.8 billion.
Similarly, in France, top-ranked CDC Gestion, with $8.6 billion in French pension assets and third-ranked Credit Lyonnais, with $2.9 billion were left off last year's survey. But last year's top two leaders - UAP Gestion Financiere and Fimagest - were missing from this year's guide.
In Switzerland, most firms repeated, but some reported dramatic increases in Swiss pension assets under management. Assets at Pictet & Cie, UBS Asset Management Zurich, Credit Suisse Asset Management and Julius Baer Asset Management rose between 74% and 103%.
But those increases stem from improved reporting practices by Swiss banks, which traditionally have been reluctant to provide precise asset management figures, Ms. Hobart said.