Traditional mutual fund companies that experienced a drain on assets in the retail side of the business got a boost in 2001 from the institutional side.
"The defined benefit marketplace has been a very stable core for investment management firms," said Derek Young, senior vice president of strategic services at Fidelity Management Trust Co., Boston, the defined benefit arm of Fidelity Investments.
That's because plan sponsors have been more patient with the volatile market than retail investors have, consultants say. Institutional investors actively rebalanced back into equities as the stock market slid, while retail investors bailed out.
Mutual fund net flows declined 45% in 2001, compared with the year before, according to Financial Research Corp., Boston. So far, the trend is continuing in 2002: mutual fund research firm Lipper Inc., New York, reported the lowest January inflows in 11 years. Just $3 billion flowed into mutual funds in January, according to Lipper data, the lowest numbers since 1991.
Reduced inflows, combined with market depreciation, made assets of any kind difficult to come by for money managers in 2001.
MFS Advisors, the institutional arm of MFS Investment Management Inc., Boston, saw institutional assets rise and retail assets fall. Institutional assets climbed 15% in 2001 from the year before to $34.5 billion, while retail mutual fund assets decreased 11.6% to $82.5 billion.
MFS gains $4.5 billion
MFS won 55 new institutional separate account mandates in 2001 for a net increase of $4.5 billion, said Joseph Trainor, president of MFS Advisors. About 60% of the sales was from existing clients, he said. Overall, it was the firm's best sales year ever on the institutional side, with $6.8 billion in gross institutional assets. Despite its reputation as a growth equity shop, MFS got a boost from other areas. Large-cap value, global equity and international equity were its most popular asset classes in 2001, he said.
Fidelity saw defined benefit assets increase slightly to $68 billion as of Dec. 31, up from $67.6 billion a year earlier. On the retail side, assets declined 11% to $547 billion, according to Financial Research Corp., Boston. Overall, Fidelity reported a 4% drop in asset under management to $883 billion while net income plunged 39% to $1.3 billion and revenues dropped 12% to $9.8 billion.
Fidelity also had a record year on the defined benefit side, bringing in $5 billion in gross sales, an increase of 72% over 2000. The firm attracted 57 new separate account mandates in 2001, Mr. Young said.
Because plan sponsors maintain their allocations and don't jump in and out of asset classes like retail investors or defined contribution investors, the defined benefit marketplace has retained assets, said Mr. Young. "Defined benefit plan sponsors focus on strategic allocations, so there is a desire to be fully invested across all asset classes," he said. "If they see moves in the marketplace, they are quick to adjust their allocations," he added.
The majority of the firm's new assets in 2001 came from its international equity and fixed-income portfolios, he said. Fidelity began building more defined benefit-only separate accounts last year and plans to develop more in these areas. The domestic equity side did not get much new business but was buoyed by clients' rebalancing.
The nation's 22nd largest mutual fund company, SEI Corp., Oaks, Pa., also saw institutional assets climb slightly in 2001. Retail mutual fund assets dropped 2.5% to $34.6 billion in 2001 compared with 2000 while institutional assets climbed 1.3% in 2001 to $22.8 billion.