As of Sept. 30, 90 of the 251 publicly announced new mandates from U.K. pension plans went to American-owned money managers. Those mandates totaled $10.6 billion, or 44%, of about $24 billion managed by U.S. firms for U.K. clients.
That's a far cry from 1995, when 24 of the 141 new mandates went to U.S. firms, according to statistics compiled by Holmes Research LLC, Louisville, Ky., which conducts marketing research for asset managers. With assets under management of about $1.6 billion, U.S.-based managers controlled about 8% of more than $20 billion in assets under consideration for the year.
Key to the growth were several factors that converged on the U.K. market, ultimately delivering a first-strike advantage to U.S. money managers who "outgunned their European counterparts," said Michael O'Brien, managing director and head of BGI's European relationship management.
"If you consider that 90% of modern finance theory was developed in the U.S, it's not at all surprising that (American-owned asset managers) are doing as well as they are," said Alan Brown, head of investment at the London-based Schroder Investment Management Ltd.
The turning point was when U.K. pension plans switched from balanced to specialized mandates in the late 1990s. U.S. players were offering more variety and complexity in investment strategies at a time when pension trustees were hungry for new ideas. With better-researched investment tools and business models, American-led asset managers were able to court consultants, who in turn had the trustees' ears.
Until the late 1990s, the U.K. had been dominated by four fund managers — Schroder, London-based Gartmore Investment Management PLC, Mercury Asset Management (acquired by New York's Merrill Lynch & Co. Inc. in 1997) and Phillips & Drew Fund Management (now part of UBS AG, Zurich).
When State Street opened its London office in 1990, the market was practically closed to foreign managers. It took the company until 1992 to gain just £900 million, or about $1.5 billion, in U.K. client assets. By 2000, assets under management grew to £18.7 billion and have since skyrocketed to £125 billion.
A turning point for SSgA was the 2001 acquisition of Gartmore's index fund business, which had about $25 billion in assets. The deal bolstered the firm's place in relation to rival BGI and provided the company with a wider platform for selling its enhanced indexing strategies.
Overall, U.S. players gained quite a few clients by offering more quantitative strategies, particularly in equities, analysts said.
The £25 billion Universities Superannuation Scheme Ltd., Liverpool, hired its first U.S. asset manager in 1999 to replace Phillips & Drew, said Peter Moon, chief investment officer of the scheme. The firm, Capital International Ltd., London, now runs an active global equities strategy totaling about 10% of its overall portfolio.
An asset allocation review the plan did two years ago led it to add two U.S.-based managers — Wellington Management International Ltd., Boston, now manages an active global equities strategy comprising 10% of total assets, and Goldman Sachs Asset Management, New York, runs a £1.25 billion active U.K. equities portfolio. At the same time, U.K. managers Schroder and Baillie Gifford & Co., Edinburgh, were dropped.
On the fixed-income front, American-imported investment strategies also gained a loyal following. At Payden & Rygel Global Ltd.'s London office, the team basically took its "global fixed-income warehouse of technology and expertise and parked it on the front doorsteps of consultants" in the late 1990s, said Robin Creswell, managing principal at the firm.