The mid tier funds market globally is facing an unprecedented squeeze, according to the latest Towers Watson/Pension & Investments survey of the world’s top 500 asset managers.
In a statement, Luba Nikulina, global head of research at Towers Watson Investment, said the 2014 ‘World 500’ study found for the first time “asset growth at the very large and smaller ends of the size spectrum, but not much in the middle”.
“The big passive houses are the beneficiaries at the large end, while smaller managers are attracting a greater proportion of active mandates as they ‘resource up’ and become more competitive,” Nikulina said.
The research found over the 10 years to the end of 2014 passive managers have grown at almost triple the rate of the entire top 500, adding about 13 per cent each year compared to just 5 per cent for the broader group.
Over the 2014 calendar year the top passive managers saw asset growth of 12 per cent to hit a record peak of more than US$15 trillion compared to US$4.6 trillion 10 years previously.
The top three managers in the Towers Watson survey – BlackRock, Vanguard and State Street with assets under management of about US$4.65 trillion, US$3.15 trillion and US$2.45 trillion respectively – are heavily skewed towards passive investments.
“It is hardly surprising that passive managers continue to attract institutional assets at such a rate, given the competition for seemingly ever-diminishing returns as well as significant innovation in the passive space,” Nikulina said. “However we would caution investors to look very carefully at some of these passive product claims, and to not forget that – governance permitting – it is no substitute for real investment skill and good active management.”
In spite of the rapid rise of index investing the majority of funds in the top 500 were still actively-managed, the report says.
While passive investment was the style du jour, Towers Watson also found vanilla remains the flavour of choice with traditional assets constituting about 80 per cent of the total split between equities (45 per cent) and fixed income (34 per cent).
However, while equity assets grew by about 10.5 per cent during 2014, fixed income, alternatives and real estate asset increased by close to 15 per cent over the period, the research found.
The report also notes the rise of independently-owned firms over the last 10 years as banks and insurance companies have lost market share.
According to the study, the proportion of independently-owned fund firms in the top 20 “has more than doubled and now accounts for the majority, overtaking both bank and insurer owned firms which have both declined in the same period”.
“In 2014, there were 11 US-based managers in the top 20 accounting for nearly two-thirds of all assets with the remaining managers all being European-based,” the Towers Watson release says.
Australia’s Macquarie Group has been the biggest queue-jumper over the last five years, the research shows, rising 66 places to take the 50th spot on the Towers Watson list with more than $370 billion under management.
Other managers experiencing growth spurts (either organically or by way of merger and acquisition) include Dimensional Fund Advisors, which climbed from 90 to 49 on the list, and Aberdeen Asset Management, up from 70 to 40 over the five years to the end of 2014.
While no New Zealand-based fund managers made the Towers Watson top 500, Australia boasted 20 firms in the list (many of which would’ve included NZ-sourced assets).
Dania Zinurova, Towers Watson Australia senior investment consultant, said Australian managers had fared reasonably well over the previous year.
“Despite a challenging environment, the 20 largest Australian asset managers grew assets under management by 5 per cent to just over US$1 trillion during 2014,” Zinurova said.
Overall, the top 500 managers in the survey increased assets under management by 2 per cent over 2014, rising to US$78.1 trillion compared to US$76.4 trillion at the end of 2013.
“… asset managers have added almost US$30 trillion globally since 2004, despite growth slowing to its lowest rate for a decade,” Towers Watson says.