The renewed focus comes as client attitudes toward those entities also are changing.
“In the past, many asset owners didn't like placing money with investment bank-owned asset managers. And lots still don't, feeling there are conflicts of interest and noting that investment bank-owned asset managers have had trouble retaining talent because a key unit of their compensation (stock) usually reflects all (of) the business, and not just asset management — so asset management executives feel like their incentives are misaligned,” Mr. Phillips said. That hasn't changed for U.S. endowments and foundations, nor some other asset owners, he said. “But as others seek outcomes that require more capital markets talent, like hedging or risk management, investment bank-owned asset managers are no longer as taboo as they were.”
Sources at bank-owned money managers agreed. “There had been some cautiousness but that is going away,” said Bob Jain, New York-based managing director and global head of Credit Suisse Asset Management. “One reason for that cautiousness was the idea that there were too many conflicts in a bank. But now, there are far fewer because banks are doing far less business on their balance sheets. It's partly about education. I spend a lot of time educating consultants on the types of specialized products that we can offer only because we are banks.”
“Some of the gatekeepers used to like the small, nimble, independent asset managers, but we are seeing some acceptance from them that we hadn't seen in the past,” said Randy Brown, global head of insurance and pension solutions, London, for Deutsche Asset and Wealth Management. Mr. Brown attributes that in part to the increased scrutiny and regulation under which banks operate.
Much of that regulation relates to the global financial crisis, which resulted in increased restrictions on certain areas of banks' operations. While many banking groups had money management units at that point, the crisis led to them taking a closer look at their offerings.
“The universal banks and investment banks with stronger asset management arms found that analysts rewarded them for that with higher valuations during the crisis,” Mr. Phillips said. “With low capital intensity and high margins, the asset management business attracts higher multiples than transaction-oriented investment banking business, making it more valuable as part of a portfolio of business lines that investment banks maintain.”
However, one investment consultant said there are a number of requirements that he looks for before feeling comfortable with a money manager.
“We would like to see (a bank-owned) asset management arm with full autonomy to run as it wants, to hire people for its funds, and with great resources and infrastructure behind it,” said Nicholas Ridgway, London-based head of investment research at Buck Consultants. Mr. Ridgway added that alarm bells would ring if a money manager is pressured to run particular strategies by its banking parent, or with a business model dictated by the owner. “Banks are realizing that, where the margins are being squeezed in day-to-day work, their asset management business is more profitable relative to overall profits (than) pre-crisis. (If they are) trying to get this juice out of their asset management arm (to compensate for losses elsewhere,) they may put undue pressure to gather more assets or run riskier products that are not in line” with their traditional way of doing things, he said.
After the crisis, a number of banking groups restructured their businesses, bringing together asset and wealth management units, and in some cases joining up other relevant parts of the firm.
“Senior management has been clear all along the way that we have to have balance to our business,” said Paul Price, global head of distribution at Morgan Stanley Investment Management, London. “It has been a steady addition to the entire banking group for 40 years, and continues to bring consistent revenue.”
