LONDON - The United Kingdom, Italy and Sweden this year will offer money managers the best opportunities for new mandates, but business opportunities in Switzerland and Germany will be limited, according to a recent survey of pension plans in Europe.
U.K. mandates worth $5.6 billion, will be up for grabs in the next nine months, according to research by Sector Analysis Ltd., London. The research is based on responses from the 960 largest pension plans in the United Kingdom, Italy, the Netherlands, Switzerland, Sweden, Germany, Spain and France, approximately 120 plans in each country.
Sector estimated the U.K. pension industry to have total assets of $598 billion at the beginning of 2001. Those assets are not expected to grow by more than 1% in the next 12 months, however, because of an expected slowdown in performance from investment markets.
Yet the use of third-party pooled funds by U.K. pension funds will increase 5%, to $114 billion from $108 billion at the end of last year. The market is open to foreign money managers, and the median pension fund had more than 90% of its third-party funds with foreign suppliers, said Magnus Spence, Sector's managing director.
But growth in the use of segregated mandates in the United Kingdom will be limited and likely to rise about 1% this year. Segregated mandates accounted for $318 billion of total U.K. pension assets as of Dec. 31.
Small Italian market
In Italy, the market remains small, with pension assets at the end of last year totaling $41 billion. But total assets with both internal and external managers are expected to jump 61% by the end of this year. At the end of last year, third-party pooled fund managers accounted for 10% of assets under management, but this figure is expected to jump 67% to $6.7 billion by the end of this year, said Mr. Spence. And while segregated mandates amount to 18%, or $7.4 billion, of assets in Italy, that percentage is unlikely to grow significantly in the next nine months.
The use of segregated mandates in Italy is relatively limited now, as the pension market is in its infancy and most assets are managed either in-house or invested in pooled funds rather than in separate accounts. But Mr. Spence expects the market for segregated mandates to jump 66% to $12 billion. The percentage of assets in segregated mandates as a proportion of total assets under management will not grow significantly, but because the overall assets are growing quickly - 61% this year - demand for segregated mandates will be high, even though they won't be as popular as pooled fund mandates.
Swedish assets under management are expected to grow to $152.4 billion this year, but demand for third-party money managers will be limited in real terms. External money managers run only 4% of those total assets in collective investment vehicles. Demand from pension funds for externally managed pooled funds is expected to grow 27% to $5.6 billion by the end of this year. Demand for segregated mandates will be slightly higher and is expected to grow about 28%. Swedish segregated mandates are worth $16.5 billion.
German institutional investors interviewed by Sector researchers did not expect their market to change dramatically in the next year.
Only 5% of Germany's $110.8 billion in total assets under management are run by external managers and invested in pooled funds. The majority of these mandates are for equity funds. Respondents did not expect assets passed to third-party pooled-fund managers to increase by much more than 5% by the end of this year.
But 37%, or $41 billion, of German assets under management are invested in segregated mandates managed by external managers. While German institutions are keen on segregated mandates, the market is not expected to grow significantly, said Mr. Spence. Demand for segregated mandates is expected to increase 8% in the next nine months.
The pension market in Germany, more than any of the other European states surveyed, was dominated by domestic money managers. Money managers with headquarters outside of Germany managed only 11% of segregated mandates. The best known supplier of money management services was, perhaps unsurprisingly, Deutsche Bank.
In Switzerland, non-domestic money managers accounted for 60% of segregated mandates at the end of last year. Of the countries surveyed, Switzerland had the third largest pool of pension assets, worth $143 billion. Assets under management are likely to increase by 2% by the end of this year, and the use of pooled fund vehicles will show only a limited increase, to $9 billion from $8 billion at the end of last year.