BlackRock CEO Larry Fink, on the firm's latest earnings call, said client consolidation of their investment manager lineups is in its "very early days." BlackRock reported $9.4 trillion in assets under management as of June 30.
Interest among institutional clients in establishing strategic ties with key money management partners isn't entirely new and some market veterans are quick to depict moves in that direction now as nuanced.
"It's not a groundswell," said Michael Perry, head of global client group and global product with Nuveen. And any moves by clients to save expense or time by culling their external manager ranks won't displace investment performance as their primary objective, he added.
Still, others say they are seeing signs of a noticeable pickup in activity now.
It may be a long-term trend but "it has definitely accelerated a bit recently," in part reflecting a greater appreciation among clients of the "frictional costs" of having more managers than they need to achieve diversification, said Onur Erzan, head of global client group and private wealth with AllianceBernstein. "There are diminishing returns to dealing with too many," he said.
Big asset owners using well over 100 external managers almost feel like they're overdiversified, with offsetting positions by their managers leaving clients with less "active share" than they need to achieve targeted returns, said Steve Klar, president of Wellington Management Co. as well as one of the firm's three managing partners.
While the evidence is anecdotal, a number of market veterans say they're confident a significant move is both underway and likely to pick up steam.
Matt Gibson, Chicago-based co-head of client group, asset and wealth management division at Goldman Sachs Asset Management, said "when you cover as many clients as we do across the globe, you develop pattern recognition across different types of clients and different products (and) I would say there definitely is a trend towards consolidating managers."
"It's not happening everywhere but it's happening in enough places" and the trend is likely to become clearer over the coming five to 10 years, he said.
"If you look at RFPs and client requests, the absolute trend I've seen, again anecdotally, by looking at these every quarter for the past 10 years, is very much their saying, you know, we have six or eight managers in this particular asset class — be it U.S. corporate debt or global equities. We want to move down" to three or four, PGIM's Hyat said.
One reason behind that trend, Gibson said, is just "bandwidth or mindshare at the client." It's easier to really understand what's going on with 50 managers than it is with 100, especially at a time when some asset owners are downsizing their staffs to save money, he said.
Goldman Sachs Asset Management reported AUM of $2.46 trillion as of June 30.
On that score, the industry might be moving to where Roz Hewsenian, chief investment officer of the $8.2 billion Leona M. and Harry B. Helmsley Charitable Trust, has been for a decade or more.
Hewsenian, in a recent interview, said Helmsley keeps its list of managers below 50 by design.
"One of the things I've learned in my career is even if you have a small amount of money, relatively speaking, with a manager who blows up, that manager will consume a disproportionate amount of your time."
"It's much better to have fewer managers, give them more money but be all over them like white on rice," Hewsenian said.
The potential for institutional clients to garner lower fees from a manager overseeing a number of different mandates is another draw. "Part of it is getting better terms ... if you work with a manager on a number of mandates," said AllianceBernstein's Erzan.
Growing moves by big asset owners to bolster in-house investment management capabilities is another factor driving demand for strategic partnerships now, industry veterans said.
"As more of these large asset owners have pretty meaningful internal management capabilities, the idea of partnering with an asset manager and learning from one another … helping their internal team be stronger … is a powerful thing," Wellington's Klar said.
Gibson said clients have seen they can get "real value out of a strategic partnership with a company like Goldman Sachs or some of our competitors," achieving more efficient diversification with fewer managers.
Wellington's Klar pointed to his firm's move over the past year to open up a rigorous portfolio manager training and development program for people in other roles at Wellington, such as analysts, to professionals with strategic clients looking to become portfolio managers.
Likewise, Paul Kamenski, co-head of credit with Man Numeric, Man Group's institutional quant affiliate, said that in an environment where big clients are building internal capabilities and consolidating their manager lineups, Man Numeric has been working to help them achieve their goals — for example, helping them establish more systematic approaches to managing their internal credit exposures by bolstering their electronic credit trading capabilities — an area Man Numeric has focused on in recent years.
