If you had checked for signs of life among institutional money managers last year, you barely would have found a pulse.
After adjusting for market growth, which was negative in domestic and international equity markets and positive in bonds, cash and real estate, assets under management of the nation's investment managers rose an imperceptible 0.2% in 2000, an encore to 1999's market-adjusted growth of 0.8%.
Without adjustment for market returns, U.S. institutional, tax-exempt assets managed internally as of Dec. 31 dropped 0.4% to $7.318 trillion in Pensions & Investments' annual survey of money managers.
Size didn't necessarily help managers, in many cases, as assets under management of the 100 largest managers of U.S. institutional, tax-exempt assets managed internally also dropped 0.08%. On a market-adjusted basis, assets of the top 100 managers eked out very slightly positive growth of 0.6% to $6.05 trillion.
In fact, several of money managers at the very top of P&I's annual ranking by U.S. institutional, tax-exempt assets lost significantly from a combination of market impact and some terminations. Among the big losers were:
* Deutsche Asset Management, which lost a whopping 41%, dropping it to 11th place from sixth last year, with $113.5 billion as of Dec. 31. Assets dropped partially because of an error in reporting the prior year, the termination of a passive account worth about $42 billion by New York City Retirement Systems, terminations by several smaller clients and market declines, said press spokeswoman Missy D'Angelis;
* J.P. Morgan Fleming Asset Management, which moved up one slot to eighth place primarily due to Chase Manhattan Corp.'s acquisition of J.P. Morgan & Co. Inc. last year, but assets dropped 18% compared with the combined assets of the two firms at year-end 1999;
* Morgan Stanley Investment Management, which stayed at 14th, dropped 7% to $109.3 billion; and
* General Motors Asset Management, which gave up 5% and dropped one spot to 13th with $111.5 billion.
While Deutsche's loss was the largest among the biggest money managers ranked by U.S. institutional tax-exempt assets, the $21.9 billion loss of Janus Capital Corp., a drop of 22% to $78.4 billion, was perhaps even more startling given the firm's explosive growth in 1999 and 1998. Janus started 2000 with $100.3 billion from U.S. institutional tax-exempt investors, which represented a growth rate of 145% from 1998's assets. But as one consultant noted, Janus' losses were almost entirely due to the abrupt shift in the stock market in mid-2000, which badly punished Janus' aggressive growth style, not due to terminations by institutional investors.
Other notable losers further down the ranks were: UBS Asset Management, where institutional assets dropped 35% to $53.2 billion, dropping to 34th from 18th; John Hancock Financial Services, which plummeted to 80th from 46th, due to a 46% drop in institutional assets; and Oppenheimer Capital, which dropped 44% to $17.8 billion, dropping to 87th from 56th.
Even the two largest investment managers - State Street Global Advisors and Barclays Global Investors NA - which held on to their rankings from the previous year, saw comparatively little growth.
SSgA had a 5% increase in U.S. institutional tax-exempt assets to $566.3 billion. In contrast, SSgA grew by 33% in 1999. BGI's growth was flat at 0.4%, with year-end 2000 assets totaling $492.5 billion. BGI's tax-exempt assets from U.S. investors grew 23% in 1999.
Despite gloomy asset numbers for many big money managers, other megamanagers had a much more successful year:
* Pacific Investment Management Co. gained 14% to end the year with $186.3 billion, moving to sixth from eighth;
* Northern Trust Global Investments, which ranked fifth, reported $215 billion under management as of Dec. 31, a growth of more than 7% from year-end 1999;
* The Vanguard Group Inc. grew 3% to $182 billion, keeping it in the seventh position;
* BlackRock Inc., a bond manager, leapfrogged its competition to land at number 28, up from 44, with asset growth of 57% for a total of $61.6 billion; and
* Legg Mason Inc., due in part to strong bond sales from its Western Asset Management Co. subsidiary, grew 25% to $76.6 billion and a 22nd place ranking.
Active vs. passive
The total of actively managed domestic equity and bond assets managed internally was up 2% in 2000 to $3.07 trillion, compared with a dip of 0.2% to $1.07 trillion in passive strategies.
Taken separately, however, assets actively managed in domestic equity totaled $1.927 trillion, up 1.3% on a market-adjusted basis. Assets invested in active U.S. bond strategies rose 2.2% on a market-adjusted basis to $1.423 trillion. (Fidelity did not report year-end 1999 data for active equity or bond management, so its year-end 2000 figures of $254 billion and $28.7 billion, respectively, were not included when figuring the overall and market-adjusted growth.)
By contrast, passive domestic equity assets grew 6.3% on a market-adjusted basis. Passively managed domestic bonds dipped 1.4% when adjusted for the market. (Fidelity's assets for passive domestic equity and passive domestic bonds, $16.3 billion and $1.4 billion, respectively, also were excluded in these calculations.)
Merger and acquisition activity remained heavy in 2000, resulting in further shrinking of the ranks of independent money managers. The larger managers that gave up their independence last year, in addition to J.P. Morgan, were Sanford C. Bernstein & Co., which was purchased by Alliance Capital Management LP; Fiduciary Trust Co. International Inc., which was purchased by Franklin Resources; and Nicholas-Applegate Capital Management, which was sold to Allianz AG.
The flip side of the huge interest in U.S. managers by European financial services companies such as Allianz, is that U.S. managers are looking just as eagerly to gain global market share. The total of worldwide assets managed by the 250 largest managers exploded in the last five years with growth of 136% from 1995 to 2000, when the total was $19.4 trillion. Growth from 1999 to 2000 was 5%.
The firm in P&I's listing with the most assets under management worldwide was Fidelity Investments, which ended the year down 3.4% at $1.038 trillion.
Northern Trust Global Investments was 15th among managers by worldwide assets, up 13% to $338 billion, and also was one of the few mainly passive managers that managed to score significant growth. Success in 2000 came from executing a specific strategy of cross-selling investment management products to the custody clients of its parent company, Northern Trust Corp., said Steve Potter, managing director and head of institutional marketing at Northern Trust Global Advisors, Chicago.
Northern Trust Global also enhanced some of the services related to its indexing products. By adding a strong securities lending capability, Northern Trust could slash the cost of its passive investment management to the extent that it became attractive to plan sponsors with passive mandates of more than $1 billion, such as the Kentucky Retirement Systems, Frankfort, and the State Universities Retirement System of Illinois, Champaign. Previously, the target mandate range tended to be $50 million to $300 million.
But Mr. Potter acknowledged that search activity for pure passive managers softened somewhat last year and the company was able to make headway with clients with some of its enhanced indexing strategies.