LONDON - Mercury Asset Management PLC remained king of the hill of U.K. pension fund managers last year, ending the year with 48.7 billion ($74 billion) in British pension assets under management.
Second-ranked PDFM Ltd. narrowed the gap, ending the year with 45.5 billion ($68.4 billion) in U.K. pension assets under management.
Market leader MAM's U.K. pension assets under management grew 20.8% last year, slightly above the average asset growth of 19.1% for U.K. pension funds, according to The WM Co., Edinburgh. In comparison, PDFM's U.K. pension asssets grew 30.7%.
The fastest growing managers, in percentage terms, were BZW Barclays Global Investors, Morgan Grenfell Asset Management and Schroder Investment Management Ltd., with gains of 57.1%, 45.4% and 40.1%, respectively.
At midyear 1995, it had appeared PDFM might overtake MAM. According to William M. Mercer Ltd.'s 1996 European Pension Fund Managers guide, MAM managed $62.8 billion in U.K. separate pension accounts, with PDFM managing $61.3 billion as of June 30.
At that time, Mercury managed an additional $3.8 billion in pooled U.K. pension assets, giving it $66.6 billion in total. In comparison, PDFM managed only $1.5 billion in pooled assets, giving it $62.8 billion in total U.K. pension assets (Pensions & Investments, Jan. 22).
For P&I's current survey, however, MAM officials declined to break out pooled and segregated assets. Nor does MAM, with more than 1,000 pension fund clients, disclose its composite performance.
Lynn Ruddick, a MAM director, explained there is increasing migration between segregated and pooled accounts among its clients, and most employ a combination of the two. That makes the distinction between segregated and pooled accounts increasingly blurred, she said.
Morgan Grenfell top performer
Gains by other leading managers reflect their superior long-term performance.
Morgan Grenfell, the rising star of the British money management business, shot out the lights last year as the top-performing manager with a 21.5% return, well above the 19.1% return for the WM Co.'s weighted average in its All-Funds Universe and 19.6% for the median return in Leeds-based Combined Actuarial Performance Services Ltd.'s total funds universe.
(The WM weighted averaged is biased in favor of larger money managers, while the CAPS figure is geared more toward smaller managers.)
Morgan Grenfell's three-year annualized return of 15.7% leaves other managers in the dust; its nearest competitor is Schroder, at 14.8%.
Morgan Grenfell's U.K. pension assets under management jumped to 12.8 billion ($19.5 billion) at year-end from 8.8 billion at the end of 1994.
Schroder's steady, team-oriented approach provided consistent above-median returns. For its U.K. balanced portfolios, compound-annualized returns hit 14.8% for the three-year period ended Dec. 31, comparing favorably with 13.7% for the WM weighted average and 13.9% for the CAPS median.
Meanwhile, passive manager BZW Barclays grew 8 billion last year, causing U.K. pension assets under management to shoot to 22 billion ($33.4 billion). BZW Barclays' assets - which exclude assets from its end-1995 acquisition of Wells Fargo Nikko Investment Advisors - were buoyed by nearly 4 billion in net new business. Half came from an indexed portfolio from the Imperial Chemicals Industries PLC pension fund, which was outsourced last year.
Nancy Dickey, managing director-European business development for BZW Barclays, said the firm is seeing rapid growth in indexed core portfolios, as more U.K. pension funds are abandoning balanced approaches for specialist mandates. Passive portfolios offer exposure to the market at much lower fees and transaction costs, she said.
Perhaps one of the biggest surprises last year was the 21.4% return for HSBC Asset Management Ltd., whose performance has been rejuvenated under the leadership of Chief Investment Officer Paul Guidone. He also acquired the chief executive officer title earlier this year.
Dean Buckley, head of U.K. and European equities, said HSBC's performance has been strong since the beginning of 1994. The bank rebuilt its investment unit following disruption from the 1992 integration of the bank's various money management entities, which included its Midland Montagu, James Capel and Wardley units.
From early 1994 into the middle of 1995, HSBC benefited from a large-cap U.K. equity bias and a strong bet on British financial stocks, Mr. Buckley said. The firm's strong three-year track record, at 14.6%, has helped it win its first piece of balanced business in several years.
In contrast, competitors have rejoiced at PDFM's lackluster 16% return last year, although its three-year track record still stands at an above-average 14.2%. Only Newton Investment Management, a high-flying performer just a few years ago, experienced a lower return, at 14.1%.
Some managers are hoping the dominance of the U.K. balanced business by four or five firms will be broken up. MAM, PDFM, Schroder, Gartmore Investments Ltd. and Morgan Grenfell have been raking in the bulk of the business for some years, although MAM and Gartmore have experienced a slowdown in new U.K. pension business in recent times.
Balanced still strong
Still, CAPS officials recently noted about 20% of major U.K. managers account for 82% of the market, up from 73% in 1990.
Balanced portfolios still comprise the great majority of U.K. pension mandates, as U.K. funds have been slow to switch to specialist managers.
The upshot is that it has been very difficult for many British managers to win mandates, failing to break into the balanced manager sweepstakes and fighting for much smaller specialist pieces.
U.K. pension assets at some firms in the ranking - including BZW, Lloyds Investment Managers Ltd., Hill Samuel Investment Management Ltd. and NatWest Investment Management Ltd. - were significantly buoyed by the inclusion of their own corporate pension funds.
Meanwhile, consolidation continues to affect leading British money managers. BZW's acquisition of Wells Fargo Nikko turned the firm into a global powerhouse. And NatWest Group purchased 75% of Gartmore's stock, although Gartmore executives will run the combined money management business.
In addition, Lloyds Bank PLC and TSB Group PLC merged, leading to the combination of Lloyds Investment Managers and TSB's Hill Samuel Investment Management. Germany's Commerzbank also acquired Jupiter Asset Management.
Experts believe the consolidation trend is far from over. Numerous U.K. insurance companies are up for sale: Clerical Medical Investment Group was just acquired by Halifax Building Society, and some believe Legal & General Group PLC may be acquired. In addition, many have questioned whether Robert Fleming Holdings Ltd.'s money management unit will retain its independence.