MEGA MANAGERS: Largest managers see assets rise 21% in ’03

LONDON — UBS AG, Zurich, held fast as the world's largest money manager in 2003 after assets under management rose 21.4%, to $1.78 trillion, as the grip of the three-year bear market eased and equity markets worldwide posted strong returns.

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Passive managers benefited from increased flows to enhanced strategies, while specialist active managers and boutiques saw assets jump because of improved performance and new client money.

The group of money managers ranking from 251 to 500 recorded the highest annual growth in assets under management compared with managers in the top 20, top 50 and top 250 for the first time since Pensions & Investments and Watson Wyatt Worldwide began ranking the world's largest money managers in 1995.

The growth could be attributed to pension funds giving more money to specialist money managers, said Carole Judd, senior investment consultant at Watson Wyatt.

While nearly all managers were able to grow assets under management, it was active specialist and boutique money managers that recorded the highest growth. Value managers investing in international markets saw good performance, while growth managers investing in cheap U.S. tech stocks benefited from last year's "crap rally" that saw a rebound in stocks shunned by the market in 2001 and 2002, said Craig Baker, head of manager research, Europe, at Watson Wyatt in Reigate, England.

Total assets managed by the world's 500 largest money managers rose 22% to $43.33 trillion.

Investment markets were on the side of money managers in 2003. The Morgan Stanley Capital International World index rose 33.8% in 2003 while the Citigroup World Government Bond index was 14.9% higher for the year.

Once again, European based money managers, such as UBS; Germany's Allianz Group, Munich; and Dutch firm ING Group NV, Amsterdam; benefited from the weaker dollar, which was 20% lower against the euro.

Allianz Group remained in second place after assets under management rose 28% to $1.33 trillion. Fidelity held fast at third position with a 25% rise in assets to $1.14 trillion.

AXA Group, Paris, reported a 26% rise in assets under management to $972 billion and crept forward to sixth place from seventh in 2002. Credit Suisse Group, Zurich, fell to seventh place from fourth in 2002 despite a 12.7% rise in assets to $971 million. Kampo, Tokyo, slipped to the eighth spot after assets under management edged 9.3% higher to $877 billion.

Traditional passive managers recorded strong growth during the year as institutional funds flowed into enhanced index investment strategies. Assets managed by passive managers included in the top 500 rose 38% in 2003. Assets managed by passive managers had declined since 2000; they last recorded double-digit growth in 1999 when indexed assets rose 30%, according to Watson Wyatt's Ms. Judd.

As a result, State Street Global Advisors, Boston, and Barclays Global Investors, London, muscled their way into respective fourth and fifth positions in the current rankings from eighth and ninth a year earlier. SSgA recorded a 45% rise in assets under management to $1.11 trillion. BGI's assets rose 43.6% to $1.07 trillion.

In a further shakeup of the 10 largest firms, Deutsche Asset Management tumbled to 11th place from fifth after assets fell 11.1% to $714.8 billion. Part of this fall was from the sale to Northern Trust Global Investments, Chicago, of the firm's U.S. indexed business, which was responsible for $65 billion.

Meanwhile Capital Group, Los Angeles, entered the top 10 at ninth place after assets rose 46% to $814 billion.

Chuck Freadhof, Capital Group spokesman, said the firm benefited from its value-oriented buy-and-hold strategy, which performed well in 2003. The firm saw increased client demand for its EAFE, global and emerging market strategies, said Drew Taylor, vice president in the institutional investor services group. The firm had also been picking up new business in U.S. equities, he added.

Mr. Freadhof would not say if the firm picked up business from competitors following the mutual fund market-timing scandal that came to light last September.

Vanguard Group Inc., Valley Forge, Pa., remained in 10th place despite a 24% rise in assets managed to $725 billion.

Putnam Investments Inc., Boston, was one of the few firms in the top 50 that saw assets fall during 2003. The firm reported a 4.5% slide in assets under management to $239.6 billion following client losses after the mutual fund market timing scandal. Putnam spokeswoman Laura McNamara confirmed the firm had experienced net redemptions during the fourth quarter.

But Janus Capital Group, Denver, another firm tainted by the scandal, reported a 10.7% rise in assets to $151.4 billion during 2003. This increase in assets was the result of Janus' merger with Stillwell Financial in December 2002 and new client inflows at enhanced indexing specialist INTECH, said Neal Jenkins, company spokesman.

"We have seen some client losses as a result of industry events," he said, referring to the market-timing scandal. But those losses had been offset by the performance of the firm's recently acquired businesses, he added.

Limited merger and acquisition activity during 2003 created some changes in the top 50.

Northern Trust reported a 58.2% surge in assets under management to $478 billion in 2003, which saw the firm jump to 17 from 29 in 2002.

Part of this increase in assets came from the acquisition of Deutsche Asset's U.S. passive businesses, but the firm also had strong inflows in new quantitative business, manager-of-managers strategies, hedge funds of funds and short-duration fixed income, said Kevin Rochford, Northern Trust's managing director, global sales and client servicing.

The firm's increased capacity in indexed business and its ability to offer specialist higher-alpha strategies meant it benefited from the global move by institutional investors toward core and specialist asset allocation, he added.

Credit Agricole S.A., vaulted to 18th place from 56th after its acquisition of Credit Lyonnais, S.A. pushed its assets under management to $476 billion, a 176% increase. Both firms are based in Paris.

Minneapolis-based American Express Financial Corp.'s acquisition of Threadneedle Asset Management, London, from Zurich Financial saw the U.S. firm's assets jump 59.5% to $366 billion. It moved up the rankings to 27th from 44th.

While 2003 was the year of specialist and boutique money managers, many smaller firms will now be looking carefully at their internal operations to ensure they can sustain that meteoric growth in assets.

Watson Wyatt's Mr. Baker said he was not surprised by the surge in assets given to specialist managers.

"A number of high-quality investment teams have started to leave the big firms to set up their own boutiques and they often take their clients with them," he said. But whether these new firms will be able to survive is another issue. "These are startup companies and a vast majority of startups go bust," he warned.

Active equity manager Marathon Asset Management Ltd., London, saw assets under management almost double to $21.34 billion. The firm recently announced it was closed to new business, but company officials did not return calls by press time.

U.K. equity specialist Liontrust Asset Management, London, reported an 83.6% rise in assets to $6.8 billion following strong inflows from institutional and retail clients. The firm's large-cap U.K. equity strategy was popular with institutional clients from whom the firm attracted £1.2 billion ($2.19 billion) in new business. Most of these mandates are smaller than £200 million and reflect the way U.K. institutions are appointing specialist managers at the margins of their overall asset strategy, said Jonathan Harbottle, marketing director.

Officials are aware that the firm would reach capacity for managing U.K. equities around £7 billion and would cease to bid for new business at that point. "If we were to close our U.K. equity business then we would offer other asset classes, but we would not put our core competence at risk," said Nigel Legge, Liontrust chief executive.

Emerging markets was the best performing asset class last year and emerging markets managers posted stellar growth as a result, said Watson Wyatt's Mr. Baker.

Emerging Markets Investors Corp, Arlington Va., saw assets under management jump 122.5% to $9 billion and Genesis Investment Management Ltd., London, posted an 86.5% rise in assets to $6.9 billion.

Emerging market debt specialist Ashmore Investment Management entered the rankings for the first time this year in 461st position with $4.9 billion in assets under management. During 2003, many institutional clients for the first time started considering emerging market debt as a viable asset class, said Watson Wyatt's Mr. Baker.

During 2003 the dollar lost 11% against the British pound and around 30% and 32% against the South African rand and the Australian dollar, respectively. South African- and Australian-based money managers saw strong growth in assets as a result.

In Australia, Queensland Investment Corp., Brisbane, saw assets under management rise 56.3% to $23.7 billion and Westpac Financial Services, Sydney, recorded a 74.1% rise in assets to $31.4 billion. But AMP Investments, Sydney, saw its assets fall 25.3% to $107 billion after unbundling its U.K. operation of Henderson Global Investors, London.

FirstRand Group, Johannesburg, saw assets climb 30% to $21.64 billion in 2003; Sanlam, Johannesburg, posted a 49.6% rise in assets to $42.48 billion; and Coronation Fund Managers, Cape Town, recorded a 48.2% rise, to $8 billion.