Assets rebound from depths of pandemic

Even as the coronavirus knocked markets and sent most money managers' assets under management sliding in March and April of 2020, the industry bounced back quickly.

In 2020, growth managers came out on top in a big way, U.S. passive strategies continued to pull in assets, outcome-oriented investing fared well as factor investing floundered and ESG continued to grow at an impressive clip.

Pensions & Investments annual survey of the largest managers found that global institutional assets under management of nearly 500 money managers grew 10.8% over the year ended Dec. 31 to $54.17 trillion. Overall, total worldwide assets for surveyed managers was $82.45 trillion, up 10.1% for the year and 53% for the five-year period ended Dec. 31. The gains for the year include a dismal first quarter — P&I previously reported that the AUM of 89 of the 100 largest managers declined by 10.4% during the quarter ended March 31, 2020.

In terms of the big winners, BlackRock Inc. and Vanguard Group Inc. remained the largest managers in terms of total global AUM, but Fidelity Investments Inc. and State Street Global Advisors swapped positions from the prior year, with Fidelity moving up to third place and SSGA moving down to fourth.

BlackRock managed $8.68 trillion in total global AUM as of Dec. 31, up 16.8% from the year before. Vanguard had $7.15 trillion in AUM, up 16.2%. Fidelity, meanwhile, had $3.61 trillion, up 18.6%, while SSGA's assets grew 11.3% to $3.47 trillion.

"The big got bigger at a clip we haven't seen in the past because the development process was stymied by the pandemic," said Jeffrey A. Levi, a Stamford, Conn.-based principal at Casey Quirk, a practice of Deloitte Consulting LLP. "It's easier to rely on an established relationship than expand relationships with new managers. Incumbents had a meaningful advantage."

For the year ended Dec. 31, BlackRock, Vanguard and SSGA were the three largest managers ranked by global institutional AUM, U.S. institutional tax-exempt assets and internally managed U.S. institutional tax-exempt assets.

However, Vanguard overtook BlackRock for the first time as the largest manager of U.S. institutional tax-exempt assets, managing $2.05 trillion as of Dec. 31, up 14.9% from the year-earlier period. Meanwhile, BlackRock ranked second, managing $1.94 trillion, flat from the previous year.

"Vanguard continued to drive positive progress for our investors despite such a challenging year for so many," said John James, a Malvern, Pa.-based managing director and head of Vanguard's institutional investor group, in an emailed statement. "While the growth in DC assets is fantastic, what was most incredible about the last year was plan participants on the whole stayed the course in saving for their retirement amidst unprecedented uncertainty."

Mr. James added: "Such discipline could not have been achieved without plan sponsors' increasing adoption of target-date funds, advice and automatic plan features that focus participants' attention and actions on the long-term."

Active U.S. growth equity managers benefited from a sharp market rebound during the year, but it was another story for value managers.

In 2020, the Russell 3000 Growth Index returned 38.3%, up from 35.8% in 2019. Meanwhile, the Russell 3000 Value Index returned 2.9% in 2020, down from 26.2% in 2019.

U.S. growth equity managed for U.S. institutional tax-exempt investors reached $1.3 trillion as of Dec. 31, up 20.5% from a year earlier, while domestic value assets fell 11.7% over the year to $568.9 billion.

"Within the equity space, there had been a trend of quality growth being seen as the be-all and end-all, with a lot of people questioning efficacy of value investing," said Christopher Thompson, director, investments at Willis Towers Watson PLC, Stamford, Conn.

Mr. Thompson said that part of this was "just the nature of the market."

"Markets cycle," he explained. "We've seen this movie before."

He added that many strong growth companies experienced good momentum and strong returns, while value companies, like ones in the energy sector, faced "some really secular headwinds."

"All of a sudden, people are asking, 'Are we doing away with fossil fuels?'" Mr. Thompson said, adding that value managers investing in energy companies during a pandemic and recession "didn't work out for them."

Mr. Levi from Casey Quirk said he wasn't surprised by this trend. "Tech stocks outperformed, (and) growth's been outperforming for a while, which is typical in a bull market."

But the increased popularity of growth stocks wasn't just due to market cycles. Growth managers with whom P&I spoke said that the pandemic accelerated this trend of growth outshining value.

"If you look at the performance of a lot of these growth names, it was extraordinary," said Jacques Chappuis, New York, head of distribution and co-head of the solutions and multiasset group at Morgan Stanley Investment Management. "COVID accelerated a lot of trends that people thought were going to happen."

For example, the pandemic turned a growth company like Zoom Video Communications Inc. from a company many people were unfamiliar with before the pandemic to a company that's so ubiquitous Mr. Chappuis noted it's become "part of the English language; people now say, 'Let's Zoom.'"

Morgan Stanley recorded a stellar year of growth, even before factoring in the acquisition of Eaton Vance Corp., which closed in March 2021. MSIM's global AUM increased 30.3% over the year to $1.47 trillion, while worldwide institutional assets rose 40% to $818.5 billion — vaulting the firm to 15th largest from 20th the year before. Of that total, $138.5 billion was in U.S. institutional tax-exempt assets, up 31.8% from year-end 2019, and its internally managed U.S. institutional tax-exempt growth equities AUM was $30.1 billion, up 222.6% from the year before.

David R. Giroux, chief investment officer for equity and multiasset at T. Rowe Price Group Inc., agreed that COVID-19 positively impacted growth stocks while adversely affecting value equities.

"There has been a decadelong trend for growth outperforming value stocks," Mr. Giroux said. "That's a function of an environment where growth companies are compounding earnings at a faster rate than their value peers. What happened in 2020 supercharged that."

The T. Rowe executive explained that COVID-19 negatively impacted such value sectors as banks, energy and "even parts of (the) travel, leisure, aerospace" industries, while growth companies such as Amazon.com Inc., Facebook Inc. and Netflix Inc. did very well during the pandemic.

"We weren't going to the grocery store. We weren't traveling. We were spending a lot more time online," Mr. Giroux said.

T. Rowe Price managed $1.47 trillion in total global assets as of Dec. 31, up 21.9% from the year before. Its U.S. institutional tax-exempt AUM was $683.3 billion, up 19.3%. And it managed $509.5 billion in U.S. institutional tax-exempt growth equity assets internally as of Dec. 31, up 17% from the same period the year prior. T. Rowe was the largest U.S. institutional tax-exempt manager of large-cap, midcap and small-cap growth strategies.

While growth reigned supreme and value struggled in 2020, their fortunes have reversed so far this year. Since Dec. 31, the Russell 3000 Growth index is down 6.3% through May 26, while the Russell 3000 Value index is up 18.2%.

Managers that offered outcome-oriented solutions also fared well last year. Managers of liability-driven investment strategies that P&I tracked managed $3.82 trillion in global assets as of Dec. 31, up 13.9% from the year before. Meanwhile, the 25 largest outsourced CIO managers ran $2.07 trillion in OCIO strategies, up 11.2%.

The 25 largest managers of non-affiliated insurance company assets had $3.22 trillion in AUM, up 10.3%.

"Firms with capabilities that allowed them to bring outcome-oriented solutions to clients, be it OCIO, LDI, or insurance outsourcing, did quite well," Casey Quirk's Mr. Levi said. "On the flip side, factor investing struggled quite a bit after having some early success."

Factor investing was flat, according to P&I data. The top 25 managers of factor-based strategies had $1.86 trillion in assets, down 0.3% from the year before.

"Factor investing historically underperformed strong active," Mr. Levi said. "In a strong rising market, (investors) often want to take more risk, so they take stronger active to get returns they want."

While factor investing struggled, passive investing, particularly domestic investing, continued to see strong growth. The largest managers of U.S. institutional tax-exempt assets managed internally saw passive domestic equity assets reach $3.43 trillion as of Dec. 31, up 14.9% over the previous 12 months and up 88.9% over the previous five years. Passive domestic fixed-income assets, meanwhile, grew to $1.04 trillion as of Dec. 31, up 17.5% for the year and up 101.8% over five years.

It was a different story for passive non-U.S. assets. Passive non-U.S. equity assets fell to $549.5 billion as of Dec. 31, down 15.1% from the year before but up 29.1% from five years earlier. Enhanced index non-U.S. equity assets were $9.03 billion, down 59.2% for the year and down 59.4% for the five years ended Dec. 31. Passive global/non-U.S. fixed income reached $16.8 billion, down 30.6% for the year and down 24.2% for five years.

By comparison, active domestic equity assets among the managers of U.S. institutional tax-exempt assets managed internally increased 12.4% to $2.91 trillion for the year ended Dec. 31 and 26.5% for the five-year period. Active domestic fixed-income assets, meanwhile, grew to $3.63 trillion, up 8.9% for the year and up 23.8% for the five years ended Dec. 31.

Assets managed under environmental, social and governance principles continued to surge, up 39.4% to $19.49 trillion and up 258.1% from Dec. 31, 2016, when P&I first tracked this data.

"There's been an increasing interest in sustainable investments and ESG," said Willis Towers Watson's Mr. Thompson. "In general, we're hearing more corporations asking, 'Hey, what are we doing with regard to ESG in our pension plans?'"

Of the managers that provided ESG data, J.P. Morgan Asset Management topped the list, with $2.25 trillion in assets under ESG principles, up 57.8% from the year before.

JPMAM ranked seventh on the overall list of managers of global institutional AUM (unchanged from the year before), with $1.42 trillion in assets, up 19.3% from the year prior.

This year, P&I also asked managers about the diversity of their staff. Of the managers that P&I profiled, women on average made up 37.9% of their total workforce in 2020, while minorities made up 27.1%. On average, 20.3% of senior managers were women and 14.2% were minorities, while women and minorities made up 14.9% and 19.1% of firms' investment staff, respectively.

Some 51 of the firms that P&I profiled in 2020 identified as minority- and women-owned firms, up by one from 2019 and down from 58 in 2015.