But the drop is relatively small, considering major domestic stock indexes lost about 22% for the year.
Robust bond returns (the Salomon Broad Bond index rose 10.1%, for example) and increased cash flow from stepped-up employer contributions to pension funds helped stem the asset drain.
Worldwide institutional assets decreased 2.1% to $13.2 trillion. Currencies are largely the reason that the overall decline in worldwide institutional assets is less precipitous, said Timothy Barron, director of research at investment consultant CRA RogersCasey, Darien, Conn. Non-dollar-denominated assets were likely to have declined less when converted to the U.S. dollar, said Mr. Barron.
In the institutional universe, State Street Global Advisors Inc., Boston, remains the largest money manager - with $745 billion in worldwide institutional and $509 billion in U.S. tax-exempt institutional assets. Barclays Global Investors Inc., San Francisco, and Fidelity Investments Inc., Boston, held on to their second and third spots, respectively. BGI had $670 billion in worldwide institutional assets and $408 billion in U.S. tax-exempt institutional at the end of 2002; Fidelity had $575 billion and $349 billion, respectively.
Down to allocations
David Eager, partner at Eager & Davis LLC, Louisville, Ky., said the 6% drop boils down to asset allocation of plan sponsors. "Asset allocation had to be by far the most important factor affecting that number," said Mr. Eager. While other factors contributed, a plan sponsor with an asset allocation of 45% U.S. equities, 35% fixed income, 10% international equities, 5% real estate, and 5% cash, returned about 7%. "Factor in cash flows and that number (6%) doesn't surprise me," said Mr. Eager.
Cash flows were indeed a factor as corporations poured $41 billion into pension plans in 2002, up from $12 billion in 2001, according to Wilshire Associates Inc., Santa Monica, Calif.
Barry McInerney, head of the U.S. investment practice at Mercer Investment Consulting Inc., New York, said pension executives were more cautious about rebalancing in 2002, which might have helped overall as higher performing asset classes, such as fixed income, were allowed to run by some plan sponsors. Indeed, data from P&I's money manager surveys showed the firms' aggregate allocation to equities declined by seven percentage points in the year ended Dec. 31, while their fixed-income exposure rose 4.1 points.
Cash flows into defined contribution plans increased 1.6% last year, said Warren Cormier, partner at Boston Research Group, Woburn, Mass. "The markets were hit so hard, it could have been worse," he added.
By and large, active equity managers added alpha over their benchmarks, said David Sancewich, analyst in the U.S. equity manager research group at Frank Russell Cos., Tacoma, Wash. "But it was nothing to write home about," said Mr. Sancewich.
With the hearty returns in the bond markets, it's no surprise that P&I's data show firms with strong fixed-income capabilities were the big winners. Among the 50 largest managers, firms showing the biggest gains included:
c Mellon Bond Associates LLP, San Francisco, up 33% to $79.9 billion and 33% in U.S. tax-exempt to $78.6 billion;
c Pacific Investment Management Co., Newport Beach, Calif., up 20% in worldwide institutional assets to $244 billion and 15% in U.S. tax-exempt institutional to $226 billion;
c Hartford Investment Management Co., Hartford, Conn., up 17% in worldwide institutional to $88 billion and 14% in U.S. tax-exempt to $39 billion;
c BlackRock Inc., New York, up 11% worldwide to $257 billion and 19% in U.S. tax-exempt to $83 billion;
c Legg Mason Inc., Baltimore, up 10% in worldwide institutional to $149 billion and 8% in U.S. tax-exempt to $104 billion; and
c Federated Investors Inc., Pittsburgh, up 7.5% worldwide institutional to $180 billion and 114% in U.S. tax-exempt to $27 billion.
Some big firms suffered some big asset declines, many of them equity and specifically large-cap growth managers. Among the losers:
c Janus Capital Group Inc., Denver, down 29% worldwide institutional to $91 billion and 25% in U.S. tax-exempt to $48 billion;
c J.P. Morgan Fleming Asset Management Inc., New York, down 19% in worldwide institutional assets to $304 billion and 21% in U.S. tax-exempt institutional to $113 billion;
c Putnam Investments, Boston, down 18% in worldwide institutional to $97 billion and 18% in U.S. tax-exempt to $82 billion;
c Alliance Capital Management LP, New York, down 14% worldwide to $211 billion and 26% U.S. tax-exempt to $115.6 billion; and
c INVESCO, Atlanta, down 13% worldwide institutional to $123.9 billion and 15% U.S. tax-exempt to $91.8 billion.
Meanwhile, State Street Global, the biggest institutional manager in the survey, received $78 billion in net new contributions last year, vs. $67 billion in 2001, said Timothy Harbert, chief executive officer.
The ability to cross-sell among SSgA's huge client base is a major key, he added, as is the megafirm's mission to branch out from plain vanilla indexing. Still, SSgA's worldwide institutional assets declined less than 3% to $745 billion in 2002 while U.S. tax-exempt institutional assets fell 8.5% to $509 billion.
Alan Brown, chief investment officer at SSgA, said 2002 marked the first time that revenue from non-passive assets exceeded revenue from passive assets.
Newcomers to the top 10 in worldwide institutional assets include BlackRock, which ranks eighth with $257 billion, moving up from 12th, and Prudential Financial, Newark, N.J., which ranks 10th with $249.8 billion, a 3% increase from last year, when it was ranked 11th. Merrill Lynch Investment Managers, Plainsboro, N.J., and Alliance Capital fell out of the top 10 in worldwide institutional assets. Merrill Lynch fell 11% to $235 billion, ranking 13th, while Alliance moved to 17th from 10th place.
At PIMCO, which ranks 11th in worldwide institutional and fifth in U.S. tax-exempt institutional assets, Brent Harris, managing director and PIMCO Funds chairman, said 2002 was the best year in the firm's history. PIMCO saw $60 billion in net new flows last year, said Mr. Harris, twice the amount of 2001. About one-fifth of the gain was in institutional assets.
"Our growth is the result of long-term consistency of performance. When people make important asset allocation shifts, the natural place to go is with someone you can bet on with respect to consistency of performance. When the tide went out, a lot of rocks came to the surface. Clients got tired of hitting rocks. "
For internally managed U.S. institutional assets:
c Actively managed equities dropped 13% while actively managed bonds rose 9%;
c Passively managed indexed domestic stocks dropped 18.7%; passively managed indexed domestic bonds rose 11%;
c International equity assets, both active and passive, dropped 10%; international bonds fell 1%;
c High-yield bond investments rose 15.6% to $87.6 billion; and
c Investments in mortgages rose 27%, to $77 billion. p