Opportunity for growth exists in the subadvisory market, but the window isn't open to all.
Subadvised asset growth overall was relatively flat in 2015, down 0.5% to $4.41 trillion, data from Pensions & Investments' annual survey of money managers show. Among the 50 largest firms, subadvised assets under management also was flat, rising only 0.3%, to $3.65 trillion.
Managers offering a way to boost alpha — whether through specialty strategies or distinct markets — will find ways to grow, investment executives and at least one consultant say.
Kai Sotorp, CEO of Toronto-based Manulife Asset Management, said in a phone interview that for the past three years, he's seen a steady appetite for cost-effective strategies with high-conviction components among clients seeking subadvisory services.
He added that Manulife's subadvisory clients are “seeing gaps” in what they can provide their clients, “so they'll seek customized solutions to fill those gaps.”
“They're looking for an active manager that brings a distinct component to their risk-return profile,” Mr. Sotorp said. “That's why they're looking for higher conviction.”
Manulife, the third-largest manager of subadvised assets in P&I's universe, had $211.3 billion as of Dec. 31, up 6.3% from the year before.
Clients are becoming more aware of costs and demanding more transparency in what the portfolios are doing, Mr. Sotorp said. The service component has also been going up, he added.
“Clients are looking for more timely response from their subadvisory platform. They want to increasingly speak to the portfolio managers,” Mr. Sotorp said.
Another challenge the Manulife CEO noted was that subadvisory clients are looking to “whittle down the number of parties they're dealing with.” This means pressure on subadvisers to prove their mettle is growing.