Client demand for more customized and factor-based solutions is driving growth within the subadvisory industry.
Subadvised assets of the 25 largest subadvisers grew 7.7% to a total of $3.16 trillion as of Dec. 31, data from Pensions & Investments' annual survey of money managers show.
Part of the increase is attributable to Boston Partners, with $50.6 billion in subadvised assets, which didn't fill out the survey the previous year.
As is the case with the broader money management industry, the subadvisory business is seeing the big getting bigger. The top 25 subadvisers accounted for nearly 72% of the total $4.395 trillion in subadvised AUM as of Dec. 31.
A year earlier, the top 25 represented 70.1% of the total subadvised AUM. And at year-end 2011, the top 25 represented 69.6% of the total.
“We saw significant flows into beta products last year,” said David Lomas, managing director and head of the global financial institutions group at BlackRock Inc., New York. BlackRock was the third-largest subadviser with $233 billion in subadvised assets under management as of Dec. 31, up 21.4% from year-end 2015.
Mr. Lomas added: “The rise of factor-based investing is going to continue. It's a small part of the asset allocation universe today, but understanding different factors that drive alpha will become more prevalent.”
While the movement to passive management from active was one of the biggest trends Mr. Lomas saw in the subadvisory business, he noted “there's still a place for active management in the subadvisory world,” particularly in inefficient markets, such as Asian equities.
“We'll still see searches in the (actively managed subadviser) space, but I am seeing more flows away from single-strategy solutions toward multiasset-style proposals,” Mr. Lomas said.