LONDON - Consolidation is sweeping across the European money management community, driven by a combination of pension reforms and increasing foreign competition, according to consultants at William M. Mercer Ltd., London.
According to Mercer's 1997 European Pension Fund Managers Guide, a wide range of mergers, acquisitions and restructurings occurred in 1996. Since mid-1995, there were 27 major changes in ownership among managers covered by the guide, of which 16 involved cross-border transactions.
Recent acquisitions include Goldman, Sachs & Co.'s acquisition of CIN Management Ltd., the manager of the U.K. Coal Board's assets; LGT Asset Management's acquisition of Chancellor Capital Management Inc.; and Zurich Insurance Group's purchase of Kemper Financial Services Inc.
While this trend partly is driven by the global consolidation, it also reflects reforms in local legislation encouraging development of funded pension plans and the threat of foreign competition.
Julia Hobart, principal at William M. Mercer Investment Consulting Ltd., London, said local managers are restructuring for both aggressive and defensive reasons.
The potential problem this consolidation raises is it might constrain pension funds to choose managers of large size only, she said. "It reduces the potential quality in the marketplace."
Another major issue facing money managers is the development of defined contribution plans across Europe. Defined contribution plans carry significant cost burdens in distribution, money management and administration, she said.
Other trends highlighted by the guide:
The number of portfolios managed by U.S.-based managers for European pension clients grew 40% in the past year.
British managers still have the largest market share of mandates sourced from outside their borders.
Specialist mandates rose more than 20% last year, with the greatest growth in emerging markets, Japanese equities, U.S. equities and European bonds. In the past five years, the number of specialist mandates has more than doubled, with the most popular being domestic equities and bonds or global equities and bonds.
Indexation is catching on. In Great Britain, about 15% of pension assets are indexed. About 6% of Dutch pension assets are indexed, up from virtually zero five years ago. Swiss pension funds have about 1% of assets indexed.
Given the size of the $862 billion U.K. pension market, it's no surprise leading managers of European pension assets are dominated by British firms, such as Mercury Asset Management, PDFM Ltd., Schroder Investment Management Ltd., and Barclays Global Investors.
However, the list changes dramatically when looked at by specialist mandates.
Following is a list of the top managers for specialist mandates, ranked by number of mandates as of June 30, 1996.
Global equities: Pictet & Cie, 43; Danske Capital Management, 37; Capital International, 33; Barclays Global Investors, 27; and Morgan Grenfell Asset Management and SBC Brinson, tied at 24.
European equities: Morgan Grenfell, 28; Dresdner Bank Group, 27; Gartmore, 13; UBS Asset Management Zurich, 11; and Danske Capital, 8.
U.S. equities: Gartmore, 9; State Street Global, 7; Wellington Management, 7; Barclays, 6; and Sanford C. Bernstein, 6.
Japanese equities: Gartmore, 9; Jardine Fleming, 8; J.P. Morgan Investment Management, 7; DICAM (UK), 6; and LGT Asset Management (UK), Nomura and Schroder, tied at 5.
Pacific Basin (including Japan): Schroder, 5; Jardine Fleming, 4; and Morgan Grenfell, 3.
Pacific Basin (ex-Japan): Schroder, 10; Jardine Fleming, 8; Gartmore, 7; Dresdner, 5; and INVESCO, 5.
Emerging markets: Gartmore, 8; Barclays, 6; Bank Sarasin, 4; LGT, 4; and Citibank Global Asset Management, 3.
Global bonds: SBC Brinson, 35; Fiduciary Trust International, 29; Commerzinvest, 25; Morgan Grenfell, 16; and Dresdner and Lombard Odier, tied at 15.
European bonds: Morgan Grenfell, 25; Dresdner, 17; J.P. Morgan, 15; AEGON, 6; UBS Zurich, 5.
Tactical asset allocation: First Quadrant, 7; Gartmore, 7; and Barclays, and Prudential Portfolio Managers, tied at 4.
Currency overlay: Pareto Partners, 6, and Gartmore, 2.