Equity managers weren't the only ones celebrating in 1999, large domestic bond managers also had a good year in gaining assets.
Domestic fixed-income asset growth the top 10 firms -- among firms with more than $10 billion in overall assets --was a total of $85.2 billion last year, a 21% increase from 1998, according to Pensions & Investments' Money Manager Scoreboard. The new-business survey covers the 12 months ended Nov. 30, 1999.
These large firms point to a combination of rebalancing and broader mandates as the reason for their growth.
"The strongest thing for all fixed-income managers was the equity market appreciation," said Brent Holden, managing director in account management at Pacific Investment Management Co., Newport Beach, Calif.
Mr. Holden said that most asset withdrawals at pension funds came from the equity investments as opposed to bonds. He also observed that in the paring of managers during company pension fund mergers, pension executives have been staying with the larger firms, such as PIMCO.
PIMCO gained the most new net domestic fixed-income assets as of Nov. 30, with $18.4 billion. It was followed by State Street Global Advisors with $13.2 billion; The Northern Trust Co., $11.9 billion; BlackRock, $10.9 billion; Banc One Investment Advisors Corp., $7.9 billion; Barclays Global Investors, $7.8 billion; Legg Mason Capital Management Inc., $4.4 billion; Mellon Asset Management, $4.1 billion; American Century Investments, $3.6 billion; and Trusco Capital Management, $3 billion.
The majority of Northern Trust's fixed-income net new growth was in active management strategies ($7.9 billion), said Stephen Potter, managing director of the institutional group. Much of the growth in active bonds was from new mandates for Northern's core fixed-income product, which just achieved its three-year track record.
Barbara Novick, managing director and director of marketing and client services at New York-based BlackRock, has spotted a trend toward broader mandates, which helped her firm in 1999.
Last year was marked by the introduction of more core-plus strategies and a new Lehman Brothers Universal index, which accelerated the movement away from specialist firms in favor of larger bond shops, Ms. Novick said.
She also has noticed that plan sponsors have consolidated money managers and want to place more money with one firm, which is often the larger firm.
"I believe our philosophy and style is in vogue," Ms. Novick said of the firm's risk-controlled core fixed-income portfolios.
The results were indeed quite different for smaller firms. The top 10 gainers in the survey with less than $10 billion in overall assets saw less money coming in than they did in 1998. In 1999, they reported anywhere between 2% and 67% less in asset gains than in 1998. While bond sentiment among institutional investment professionals is still negative, Tal Daley, senior vice president, director of marketing for Baltimore-based Legg Mason, said he saw plan sponsors rebalancing their asset allocations last year, although a only a small number were doing so.
Bigger years ahead
Although Legg Mason saw an increase in U.S. bond assets last year, Mr. Daley is expecting more growth in the future once the bond market heats up again and stocks lose some of their luster.
"There is a small cadre at both defined benefit plans and defined contribution plans that have concluded that the stock market is overvalued and the bond market is undervalued," he said.
While PIMCO achieved all of its domestic bond growth in active management, other firms didn't have the same results.
New active domestic bond business among the top 10 larger firms fell by 4% to total $65.7 billion in 1999, following the huge boom in active business in 1998, according to the survey. In 1998, assets flowing into active bond portfolios as reported by the 10 largest gainers were twice those of 1997.
Half of the leaders in domestic bonds also were on the top of the list in active fixed-income management. PIMCO, BlackRock, Banc One, Legg Mason and Trusco Capital gained all of their assets in active fixed-income management.
Some of the same managers that saw growth in overall domestic fixed-income assets saw growth in domestic balanced accounts as well.
The top 10 winners of new business (among managers with more than $10 billion in overall assets) in U.S. balanced accounts gained $14.3 billion in assets in 1999, a 378% increase from the top 10 in 1998.
Many factors were behind the boom in assets, according to managers.
For New York-based Mellon Asset Management, which topped the ranking with $5.3 billion in new accounts, it was a case of recategorization.
Assets that had been categorized as passive equity in 1998, were listed as domestic balanced mandates in 1999.
Mellon also reported its assets under a new name that includes the assets of Mellon Financial Corp.; Dreyfus Corp.; Boston Co. Asset Management LLC; Mellon Equity Associates LLP; Mellon Capital Management Corp.; Mellon Bond Associates LLP; Franklin Portfolio Associates LLC; Certus Asset Advisors; Pareto Partners; Prime Advisors; and Mellon Private Asset Management.
The other managers rounding off the top 10 gainers in domestic balanced accounts were: State Street Global, $4.8 billion; Trusco Capital, $1 billion; Capital Guardian Trust Co., $874 million; National Asset Management Corp., $639 million; Putnam Investments Inc., $457 million; American Century Investments, $408 million; Bank of New York, 339 million; Northern Trust, $269 million; and Banc One Investment, $176 million.
At Atlanta-based Trusco Capital, clients were looking to dampen stock market volatility and were not just rebalancing by adding balanced portfolios, said Paul L. Robertson, senior vice president, secretary/treasurer.
Capital Guardian attributed its growth in balanced to being hired as a subadviser to one large client, according to a company spokesman.
Officials at National Asset Management said its growth came from 17 new accounts in 1999.
"Going into 1999, we were contemplating whether we wanted to push balanced . . . it was kind of dead on the vine," said Matt Bevin, director of marketing at the Louisville, Ky.-based firm.
Instead National Asset Management saw the strategy gain in popularity, mostly among plans with less than $75 million in total assets and typically in the Taft-Hartley arena.
The two main reasons smaller plan sponsors have chosen balanced managers are to save money and to survive internal staff downsizing, which often makes it impossible to track more managers, Mr. Bevin said.
Putnam Investments, Boston, also saw a boost in balanced accounts this year, also mainly from small Taft-Hartley funds.
John Brown, chief of institutional management at Putnam, said his firm tends to be pretty successful with its balanced portfolios, which are invested in large-cap U.S. equity and U.S. bonds.