Money managers and asset owners say the financial crisis that ripped through global markets a decade ago pushed them to raise their games in areas ranging from risk management to portfolio construction.
Their struggle to survive the implosion of financial markets and subsequently recover lost ground reflects decisions made at the height of the crisis, from mid-2007 through early 2009, and thereafter, as they navigated markets driven by unprecedented policy intervention.
"From the perspective of 10 years later, it's been a V-shaped recovery — sharp, very painful but relatively quick," said Thomas E. Faust, CEO and president of Boston-based Eaton Vance Management. "You can't divorce anything we've done from that broader market environment — from either the crisis itself, or the policy response, the quantitative easing. It all connects," he said.
The specter of the institutions that defined the financial system crumbling led to "everything being called into question," and in a way, "everything changed after the financial crisis," said Kevin Quirk, Darien, Conn.-based principal with Casey Quirk, a practice of Deloitte Consulting.
Whether it's institutional clients asking managers to join them in crafting "total solutions" for their portfolios or an unprecedented focus on management fees, the changes afoot now were "absolutely catalyzed" by the crisis, he said.
Two changes in the retirement industry accelerated by the global financial crisis have been the broad take-up of alternative strategies in lieu of equities and a more agile, goals-based "total portfolio" approach by institutional investors, which should leave them better positioned to be "contracyclical" at times of market stress, said Roger Urwin, London-based global head of investment content at Willis Towers Watson PLC and co-founder of the Thinking Ahead Institute.
For now, if assets under management can be taken as a rough barometer for how well money managers have fared since the crisis, the past 10 years point to both a degree of stability — eight of the 10 biggest managers at the end of 2006 continue to rank in the top 10 more than a decade later — and a wide divergence in gains.
BlackRock Inc., the biggest manager, with $6.29 trillion at the end of 2017, and Vanguard Group, the runner-up with $4.94 trillion, were up 114% and 323%, respectively, from a decade before. The next eight firms were up between 27% and 70%. (BlackRock's 114% surge reflects the 2007 combined totals of BlackRock and Barclays Global Investors, the giant quant firm BlackRock acquired in 2009.)
Managers with big passive businesses have been "huge asset flow winners" in a post-crisis period where quantitative easing policies by leading central banks have flooded the markets with liquidity, Mr. Quirk said.
Asset owners, meanwhile, on the back of a nine-year bull market driven by that extraordinary monetary policy support, have seen their funding levels rebound from the depths of the crisis.
But if managers and asset owners alike have been able to largely bounce back from the worst financial blowup since the Great Depression of the 1930s, 10 years ago that outcome was anything but certain.
"2008 was like a near-death experience for the market," said Christopher J. Ailman, chief investment officer of the $223.8 billion California State Teachers' Retirement System, West Sacramento. The huge public pension fund saw its portfolio decline 16.5% to $147 billion over the 12 months through Sept. 30, 2008, and then another 11.4% to $130.5 billion for the year through Sept. 30, 2009.
Ten years later, "we're out of the hospital," Mr. Ailman said, but "it's not like we're an Olympic athlete."
Market veterans cited different points along the way — as the U.S. market for subprime mortgages morphed from an isolated problem at the start of 2007 into a crisis threatening to topple U.S. banks like tenpins — when they first sensed they were dealing with something over and above the typical bear market.
Noel O'Neill, head of global investment research with Boston-based investment consultant Cambridge Associates LLC, said for him it was the second week of June 2007, when an "enhanced cash vehicle" managed by a leading manager of passive strategies froze.
That a vehicle like that — supporting investments such as securities lending collateral and equity market futures, in a segment of the market meant to be safe money — could become illiquid was "a real shot across the bow," Mr. O'Neill said.
For Eaton Vance's Mr. Faust, it was February 2008, when the auction preferred share market, which provided liquidity to holders of roughly $5 billion in Eaton Vance's closed-end funds, ceased functioning.
That was the moment "when I realized this wasn't Kansas anymore, or — since I'm from Arkansas — that this wasn't Arkansas anymore," he said.