U.S.-based money managers strengthened their grip on the global investment industry in 1997, seizing a 44.2% market share of the $25 trillion industry, according to the P&I/Watson Wyatt World 500.
That's a sharp rise from the 36.8% market share they held at year-end 1996.
Much of the market gains came at the expense of Japanese managers, whose market share plunged because of the declining yen, abysmal returns and the beginnings of outflows of domestic pension assets. Japanese managers saw their global market share slump to 15.3% from 21.9% the previous year.
"It was a hat trick year for U.S. money managers," said Susan Douse, senior investment consultant with Watson Wyatt Worldwide, Reigate, England. Managers benefited from a "strong currency, continued growth in U.S. equity mutual funds and a strong local equity market."
The question is whether this trend will continue.
Boosted by strong profitability and the ability to invest in information technology, U.S. managers' market domination could keep on building, Ms. Douse said.
Global trends toward defined contribution plans, requiring greater infrastructure, will make it more expensive for managers to compete in an increasingly international business. "I think we're into a different era here," she said.
The ranking by Pensions & Investments and Watson Wyatt reveals the 500 largest money managers had $24.8 trillion in total assets under management at year-end 1997.
While last year's list covered only the top 300 managers, in reality it made little difference in drawing comparisons: At year-end 1997, the top 300 managers ran $23.4 trillion -- 94% of the total.
There is a certain element of double-counting in the numbers, however. Each manager's total includes assets outsourced to external parties. Manager-of-managers, such as Frank Russell Co. and SEI Corp., also are included.
In addition, many insurance company assets are reported at book value. In Japan, both insurers and trust banks use book-value accounting, and often use the end of the fiscal year, March 31, instead of Dec. 31.
Assets were heavily concentrated in a small group. The top 100 managers ran $17.4 trillion, 70% of the total.
Firms in six countries accounted for nearly three-quarters of assets managed. After U.S. and Japanese firms, U.K. managers had a 9.2% global market share; Swiss managers, 7.8%; German firms, 6.6%; and French managers, 5.6%.
U.S.-based managers, buoyed by a strong domestic stock market and the strength of the dollar, increased their hegemony of the industry. They managed nearly $11 trillion in assets.
Those factors helped second-ranking Fidelity Investments close the gap between itself and Kampo, the life insurance system run by the Japanese post office. With $635 billion in assets, Fidelity is only $123 billion behind Kampo, compared with a $279 billion gap last year.
A number of firms were propelled upward in the rankings through mergers and acquisitions. Merrill Lynch & Co. Inc.'s $5.1 billion purchase of Mercury Asset Management nearly doubled assets under management to $446.3 billion at year-end, propelling the firm to fifth on the list from 15th last year.
Similarly, last year's merger of A I M Management Group Inc. and INVESCO PLC enabled newly renamed AMVESCAP to jump to 19th from 65th. (AMVESCAP's purchase of LGT Asset Management closed in 1998, leaving the firm, with $53.9 billion in assets under management, ranked separately at 119.)
But acquisitions were not made solely by U.S. managers. The hotly contested takeover of Assurance Generales de France caused Allianz Holdings' assets to surge to $333.7 billion from $223.3 billion a year earlier; as a result, the German insurer rose to 12th in the ranking from 20th.
And Zurich Group shot up to 23rd from 78th, aided by the purchase of Scudder, Stevens & Clark. That purchase, of course, came after the 1996 purchase of Kemper Corp. This year's acquisition of British American Financial Services, which includes Threadneedle Asset Management's $58.8 billion in assets, will buoy Zurich's totals even higher.
"Obviously, if markets head south, this kind of 'big is beautiful' trend will go the way of all flesh," said Philip Robinson, an investment consultant at Watson Wyatt.
The problem is that money management mergers are driven by a desire to be big instead of by client needs, Mr. Robinson said.
"They're (the clients) the people who are going to pay for it," he added.
Other managers, however, moved up the rankings through organic growth. State Street Global Advisors edged up two notches to seventh as assets under management rose 32.5% during 1997 to $398.7 billion. Growth was across the board from different types of products and different customer bases, although the biggest chunk -- about half of the growth -- came from passive equities.
At Bankers Trust Co., a primary driver of growth was the firm's private-labeling indexed business, said Jerry Chafkin, managing director, structured investment management. Private-label clients include Fidelity; Equitable Life Assurance Society; Travelers; and Scudder, Stevens.
"We can usually sell it to people for less than it would cost them to build it themselves," he said.
Growth in cash and stable value products also contributed to the firm's rise to 14th from 18th.
Italian managers also shot up in the rankings, helped by strong domestic equity markets and huge inflows into stock mutual funds. Generali Group, Istituto Mobiliare Italiano and INA all showed substantial gains in assets under management.
