This is the 44th year Pensions & Investments has surveyed money managers to gather insights about all aspects of the money management landscape.
First and foremost, what we learned from the 2016 data is that there are more assets to manage and the biggest firms are managing a larger share. Given rising merger activity and the other factors putting stress on money managers' bottom lines, indications are the concentration trend will continue.
The latest survey found that total worldwide assets under management through Dec. 31 by the nearly 600 firms responding are up 9.1% from a year earlier, to $58.77 trillion.
Looking back over the past decade, to just before the start of the global financial crisis, we see the growth trend is not new. Total worldwide AUM is up 57.4% from the $37.34 trillion in the year ended Dec. 31, 2006.
The trend within the Top 100 firms by AUM is even stronger.
This year, that universe was up 9.4% over 2015, rising to $52.43 trillion, or 89.2% of the total assets. The market is moving toward the inauspicious indicator of large firms controlling 90% of the assets or more.
The concentration has been growing along with the assets — it is up from 88.97% in 2015, 88.35% in 2014. A decade ago, the Top 100 firms controlled 86.77% of the total in the survey.
Drilling down to the subset of assets most closely aligned with our audience, U.S. institutional tax-exempt assets, the concentration is growing at about the same pace. It hit 88.4% in 2016, up from 84.85% a decade ago.
And as reporter James Comtois' article in this issue shows, the bulk of institutional investors' capital is going only to a small number of managers and strategies.
Data Editor Charles McGrath's data story on Page 3 highlights that trend, showing money going into active institutional mutual funds, according to Morningstar Inc. data, is flowing to the cheapest funds available.
Taken together, these factors all point to an industry where the bulk of assets are increasingly invested by a small number of firms. As in other industries, concentration of business is good, when it leads to efficiencies and economies of scale.
(As an aside, it also is good for employment: The firms responding to the current survey employ 554,635 people, up 12% from a year ago.)
Larger firms can offer plan sponsors more of the strategies they seek in the same place. Larger firms also are likely to have the resources to do the research and buy the technology that are increasingly necessary to drive alpha and provide security to participants' data and assets.
This is definitely an industry where size matters and being pennywise can have its costs.
But when concentration turns to oligarchy, plan sponsors, and ultimately their pension and retirement plan participants, have fewer options. When what's been a buyers' market becomes a sellers' market, the risks of problems rise.
As an institution focused on asking questions to benefit the plan participants, most of whom don't have access to more than 40 years of money manager data, Pensions & Investments is raising the issue as an important one for readers to consider as we start the collections for year 45.
