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March 21, 2005 12:00 AM

Indexed assets up 14.2% to top $4 trillion in 2004

Rob Kozlowski
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    Indexed assets in Pensions & Investments' universe topped $4 trillion as of Dec. 31, according to P&I's latest survey of the leading index managers.

    The assets grew 14.2%, to $4.04 trillion, from $3.54 trillion as of June 30. On a market-adjusted basis, total indexed assets rose 4.8%. (The figures refer to internally managed assets only.)

    When split by asset class, domestic indexed equity assets rose a market-adjusted 5.1%; domestic fixed income rose a market-adjusted 2.7%; international equity, 8.8%; and international fixed income fell a market-adjusted 4.6%.

    During the six months ended Dec. 31, the Russell 3000 index returned 8.1%; the Citigroup Broad Investment Grade bond index returned 4.3%; the Morgan Stanley Capital International Europe Australasia Far East index, 15.1%; and the JPMorgan Non-U.S. Government Bond index, 14.2%.

    Total U.S. institutional tax-exempt assets under internal indexed management grew, but was slightly behind the market. Total institutional tax-exempt indexed assets came in at $2.2 trillion as of Dec. 31, an increase of 6.8% from June 30. On a market-adjusted basis, however, there was a loss of 1%.

    Enhanced indexing strategies grew 20.3%, with $378.6 billion reported as of Dec. 31, reflecting pension sponsors' increasing interest in the strategy's additional return without an increase in active risk.

    Barclays Global Investors, San Francisco, held steady in the top spot of index managers, with $1.3 trillion in total worldwide indexed assets as of Dec. 31, an 18.3% increase from $1.1 trillion as of June 30. On a market-adjusted basis, BGI saw those assets rise 7.4%.

    BGI's U.S. institutional tax-exempt indexed assets grew at a slower pace, with $635.3 billion in assets, a 9.3% increase from $581.3 billion as of June 30. On a market-adjusted basis, assets grew 1.1%. When split by asset class, BGI saw the largest growth among its own assets in institutional tax-exempt indexed domestic bond assets, with a market-adjusted increase of 11.7%.

    State Street Global Advisors, Boston, lagged behind BGI slightly in the growth of total indexed assets, with $1.15 trillion reported as of Dec. 31, an 8.1% increase from $1.06 trillion as of June 30. On a market-adjusted basis, growth was flat.

    SSgA in 2nd place

    SSgA's six-month sojourn as the largest manager of U.S. institutional tax-exempt came to an end as BGI sped on ahead. SSgA's U.S. institutional tax-exempt indexed assets dipped to $614.1 billion as of Dec. 31, a 0.7% decrease from $618.2 billion as of June 30.

    The majority of the decrease in institutional assets was due to a reclassification of SSgA's enhanced bond strategies to active management. SSgA had reported $8 billion in domestic and international enhanced bond strategies as of June 30.

    "What we found, the more we talked to consultants, was that with 40 to 60 basis points over the index, we were what consultants in the outside community were considering as active," said Michael Wands, head of U.S. fixed income at SSgA. "It's an observation that we gleaned over the past year, and it became clearer with the more consultants we spoke to. We spoke to 15 to 20 consultants, and the feedback was pretty consistent."

    SSgA did see a large increase in enhanced equity strategies, particularly on the non-U.S. side. SSgA reported $3.8 billion in enhanced non-U.S. strategies as of Dec. 31, up from $49 million as of June 30. The increase was due to a new mandate from a client who had previously held the assets as passive.

    Over the past several years, the majority of new enhanced business growth in the past three years has come from previously passive mandates, according to Arlene Rockefeller, managing director of equities and director of the Global Enhanced Equities Group at SSgA.

    Columbia Management Group, New York, moved up in the rankings because of the acquisition of its parent, FleetBoston Financial Corp., by Bank of America, Charlotte, N.C. As of June 30, the indexed assets of Bank of America Capital Management LLC totaled $13.8 billion, and Columbia's totaled $3.1 billion. After the merger, Columbia reported $16.9 billion in total worldwide indexed assets as of Dec. 31, unchanged from the total of the two firms six months previously.

    Big increases

    Several other firms also reported significantly higher increases in indexed assets than the average manager.

    Enhanced Investment Technologies LLC, Palm Beach Gardens, Fla., reported $11.1 billion in total worldwide indexed assets — all in enhanced domestic equity — an increase of 43% from $7.7 billion as of June 30. The dramatic increase was attributed to market appreciation, as well as several new clients.

    Goldman Sachs Asset Management LP, New York, saw a market-adjusted increase of its total worldwide indexed assets of 17.1%, with $54.1 billion in assets as of Dec. 31, up from $41.6 billion as of June 30.

    OakBrook Investments LLC, Oak Brook, Ill., saw a decline in its worldwide indexed assets, to $767 million as of Dec. 31, a decrease of 66% from its total of $1.3 billion as of June 30. Calls to the firm were not returned.

    The growing popularity of enhanced indexing showed no signs of slowing down.

    Total enhanced indexed assets as of Dec. 31 jumped up to $378.6 billion, a 20.3% increase from $314.6 billion reported as of June 30. BGI also became the first manager to run more than $100 billion in enhanced strategies, reporting $100.1 billion as of Dec. 31, up 6.3% from $94.2 billion as of June 30.

    TIAA-CREF, New York, reported $15.7 billion in enhanced indexed equity assets as of Dec. 31. In previous surveys, it had reported no enhanced index assets. A spokesman said assets previously reported as traditionally passive should have been reported as enhanced index assets.

    Atlantic Asset Management LLC, Stamford, Conn., saw its synthetic enhanced stock index numbers rise 47.4%, to $1.1 billion as of Dec. 31, from $750 million as of June 30. Pacific Investment Management Co., Newport Beach, Calif., reported $30.5 billion in enhanced indexed assets as of Dec. 31, a 24.5% increase from $24.5 billion as of June 30.

    The CalPERS effect

    The enhanced index business of Atlantic and PIMCO were helped in large part to their hiring by the $182.9 billion California Public Employees' Retirement System as part of a 10-firm pool of enhanced equity managers (P&I, June 28).

    Legg Mason Inc., Baltimore and Morgan Stanley Investment Management Inc., New York declined to participate in the year-end survey; they are ranked by their June 30 figures.

    P&I's universe of index managers is drawn from the P&I 2004 Money Managers Directory; to be included, managers must have some amount of U.S. institutional tax-exempt assets under management.

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