BOSTON - While some of its competition braces for changes, State Street Global Advisors Inc. is digging in its heels.
Boston-based SSgA's institutional indexed assets rose 9%, a period when the benchmarks have been negative and U.S. plan sponsors have pulled back on indexing. In 2001, just 13% of assets placed were indexed, a drop of 82% from the previous year, according to Mercer Manager Advisory Services, Louisville, Ky., which tracks manager placements.
Meanwhile, one of SSgA's largest rivals may be getting out of the indexing business and another may be for sale. Rumors have been swirling that Barclays Global Investors, San Francisco, is on the block. Sources say the parent company, Barclays PLC, is looking to divest of its asset management business. BGI spokesman Tom Taggart said Barclays officials never made any public statements to that effect. He would not comment on the sale. "Barclays is committed to BGI," said Mr. Taggart.
As far as indexing goes, Mr. Taggart said BGI continues to see growth in the indexing business as well as active management, enhanced indexing, and exchange traded funds. "Indexing is one of the many things we do," he said. "There's no question we're expanding into the higher alpha products because they are of great interest to clients," added Mr. Taggart. BGI had about $344.1 billion in indexed assets under management as of Dec. 31, according to figures provided by the firm to Pensions & Investments.
And Deutsche Asset Management, New York, also may be selling off its indexing business. In a release, the firm said it is considering "strategic alternatives" for its passive management business, which may include a sale. The firm, which has about $70 billion in institutional indexed assets, plans to focus on its core businesses.
Peter Leahy, director of global structured products at SSgA, would not comment on whether SSgA is looking to acquire one of its rivals, but officials there are watching. "We're interested in opportunities that present themselves in the marketplace," said Mr. Leahy. "Clearly, there's some interesting developments out there, and we as well as many others are thinking about it."
"Our commitment to the business remains strong," said Mr. Leahy, whose group brought in $26 billion in net new assets in 2001 and $13 billion in net new assets in the first quarter of 2002.
Overall, SSgA saw institutional indexed assets increase 8.7% to $324 billion in 2001, according to P&I, with strong growth coming in domestic fixed income and international equity. International indexed assets climbed 19% to $90 billion while domestic fixed-income indexed assets increased about 71% to $20.9 billion in 2001. Domestic equity indexed increased slightly to $213 billion up from $210 billion despite brutal market conditions.
A strong 2001 enabled SSgA to close the gap on rival BGI, whose indexed assets fell 14.7% in 2001.
Most of the growth has come from international markets, said Mr. Leahy. "The institutional indexing market in the U.S. is getting fairly mature. Outside the U.S. there's plenty of room to grow," he added. Indeed, 75% of new mandates in the past 18 months have been coming from non-U.S. clients. "That's where the faster pipeline is right now," said Mr. Leahy, citing continental Europe, Asia, and Japan as hot spots for indexing.
Mr. Leahy said he doesn't understand why other large players would want to get out of the business, because it's such a difficult business to enter. "You don't just jump into indexing," said Mr. Leahy. "It's like making airplanes; you need a lot of infrastructure."
More consolidation seen
Consultants expect to see more consolidation in the indexing business as the markets continue to take its toll. But the impact will be felt on the smaller players, who don't have the size to compete in a lower margin business, they said.
"It's one of the areas within the asset management business where there truly are economies of scale," said Christopher Acito, partner at money manager consultant Casey, Quirk, & Acito LLC, Darien, Conn.
But Mr. Acito is surprised at the stories swirling about some of the larger players. "It's not obvious to me why people would want to get out of the indexing business," said Mr. Acito. While it's not the highest margin business and not as sexy as active management, indexing anchors a lot of relationships that top players like SSgA and BGI have been successful in cross selling to other parts of their respective businesses, he said.
Burton Greenwald, president of Philadelphia-based money management consulting firm B.J. Greenwald & Associates, said indexers are clearly losing some of their appeal in the institutional arena because of their underperformance relative to active managers, he said.