Investment consultants and institutional investors are looking at portfolios and realizing they're well below ideal targets for emerging markets exposures, Mr. Quirk said. “There's a lot of pent-up demand there for emerging markets,” which spans asset classes.
It used to be that a handful of exuberant managers were banging the emerging markets drum, while investors mostly covered their ears. But now investors have burned through managers' capacity and are waiting for more.
“Our problem is, can we grow in a way that keeps us in a market-leading position? The market is growing faster than we are,” said Jerome Booth, head of research at emerging markets specialist money manager Ashmore Investment Management Ltd., London. “We welcome the competition; we welcome more people in the space.”
Ashmore's assets under management grew to $60.4 billion as of Dec. 31, up from $26.8 billion five years prior. In 2006, 68% of the firm's AUM was in hard-currency emerging markets debt strategies. Since then, Ashmore has expanded into corporate bonds, alternatives, cash and multistrategy offerings. Hard currency in 2011 made up about 22% of AUM.
Growth at emerging markets debt manager Stone Harbor Investment Partners has been brisk. The firm gained $37.3 billion in the three years ended April 30, 80% of which was in emerging markets debt. Total assets were $49.1 billion as of April 30.
James E. Craige, a partner at Stone Harbor in New York, said higher-fee emerging markets strategies aren't always more profitable. “The fees are marginally higher but the (operating investments) are higher, too,” Mr. Craige said. “You need a larger infrastructure to manage emerging markets debt than perhaps for other asset classes.”
At quantitative equity firm Parametric Portfolio Associates, Seattle, emerging markets assets under management jumped nearly fivefold to $14 billion over the past five years, according to Paul Bouchey, managing director and head of research. The firm's overall AUM is $47.9 billion.
“There's no question” it's become a bigger part of Parametric's business as investor appetite has shifted in favor of emerging markets, Mr. Bouchey said. “It represents about a third of our assets but definitely more than half of our revenues.” The firm, which has run its structured emerging markets strategy for 16 years, has added staff to handle the growth, he said.
Last year it launched a second strategy, structured emerging markets core, which excludes frontier markets. A client unable to invest in frontier markets requested the strategy, and Parametric executives gladly assented because the main strategy was approaching its capacity limit of $18 billion.
Other managers have been adding frontier markets and small-cap emerging markets equity strategies as way of expanding outside of the mainstream.
For example, Acadian Asset Management LLC, which has had a frontier strategy since 2007 and an emerging markets one since 1993, last year created small-cap and managed volatility emerging markets equity strategies. Acadian manages $48 billion, of which $13 billion is in emerging markets.
“Our process works better in emerging markets, which are less efficient,” said Ross Dowd, senior vice president and head of global marketing and client service at Acadian in Boston. “Going beyond those core markets is an advantage to us.”