The cosy old world of asset management seems already seems like a different era. One day, CEOs will probably tell their grandchildren about the bygone days of fat margins, soft dollars and dubious intermediary arrangements. Business school students will be shocked by case studies of high-fee, low-added-value active management.
Just as today’s students might wonder how previous generations got by with slide rules and logarithmic tables, tomorrow’s generation of analysts and aspiring fund managers might ask how you could base a credible security selection model within the limitations of traditional corporate data sets.
In fact, a new paradigm for asset management may soon be upon us, just as enhanced computing power led to the growth of quant and indexing from the 1970s onwards. Big data, machine learning and artificial intelligence (AI) are already challenging old investment models, and firms of all sizes, from BlackRock down, are hiring data scientists to pep up their investment processes.
This could be a thoroughly good thing. For quant processes it means managers need no longer be dependent on a similar set of algorithms, so episodes like the 2007 quant crash may be a thing of the past. In fundamental strategies, the collision of traditional and big data could lead to a productive synthesis between man and machine. To coin an increasingly popular tech refrain, man and machine are better than man or machine.
Regulators and clients have exercised pressure on asset managers to deliver better value on fees and greater transparency on costs, which has clearly squeezed margins in recent years, as has competition from low-cost passive and smart-beta solutions. New models of active management might relieve some of the margin pressure if they prove their worth, but many owners are looking to consolidate to leverage economies of scale in this new world.
Top 400 Asset Managers 2017 (Top 25)
|Company||Country||Total AUM 2017||Total AUM 2016|
|31/12/16 (€m)||31/12/15 (€m)|
|2||Vanguard Asset Management||US/UK||3,727,455||3,091,979|
|3||State Street Global Advisors||US/UK||2,340,323||2,066,479|
|4||Fidelity Investments||US||2,129,650 (1)||1,830,330|
|5||BNY Mellon Investment Management||US/UK||1,518,420||1,492,895|
|6||J.P. Morgan Asset Management||US/UK||1,479,125||1,361,178|
|10||Goldman Sachs Asset Management Int.||US/UK||1,116,606||996,651|
|12||Legal & General Investment Mngt.||UK||1,047,470||1,012,389|
|13||Wellington Management International||US||928,380||853,274|
|14||Northern Trust Asset Management||US/UK||893,575||805,763|
|16||Natixis Global Asset Management||France/US||831,501||801,128|
|18||T. Rowe Price||US/UK||768,711||702,479|
|19||Deutsche Asset Management||Germany||705,867||777,091|
|20||AXA Investment Managers||France||699,628 (2)||669,436|
|21||Affiliated Managers Group||US||689,000||578,310|
|23||Franklin Templeton Investments||US/UK||684,270||703,220|
|24||Sumitomo Mitsui Trust Holdings (SuMi TRUST)||Japan||659,180||614,762|
|25||UBS Asset Management||Switzerland/UK||612,754||597,234|
(1) As at 31/03/17 (2) As at 30/09/16
(To buy the Top 400 data, email Emma Morgan-Jones )
Once, insurers and banks looked to acquire asset managers because the business provided high and stable margins. But the wave of consolidation since 2009 has been more about external pressures – shoring up bank capital adequacy ratios or the challenge to traditional mid-size players of passive and factor investing approaches.
The rise of new technologies is likely to spur more M&A activity. Yet in a world of big data and practical application of AI, agility may be as valuable as scale economies. There are already enough case studies of failed asset management mergers to fill a textbook or two.
So to make M&A work, business leaders will need to tread carefully to avoid destroying the value built up within existing processes, teams and their cultures. A good client relations culture has long been a winning formula in asset management yet this seems harder to replicate in practice for many players. Diversity within organisations and teams is increasingly in demand.
Preaching a gospel of long-termism isn’t enough though. As the likes of the CFA Institute have long preached, tomorrow’s asset management firms will have to embrace a culture of responsibility towards clients and their desired long-term outcomes if this business is to become a respected profession that transforms investment dollars into long-term productive capital.
There will always be what Keynes termed the “beauty contest” investors, who chase short-term value, and intermediaries who benefit handsomely from this approach. But the news is that institutional investors, who are getting larger and more sophisticated themselves because of consolidation, are increasingly able to tell them apart. And they know which they prefer.
Liam Kennedy, Editor, IPE
Our methodology: In New York’s Gilded Age at the end of the nineteenth century, just 400 people were counted among the members of fashionable society – reputedly the number who could fit into Mrs Astor’s ballroom. In this spirit, since 2002, IPE has collected data on the leading 400 asset managers both globally and in Europe. The data is compiled by IPE, on the most part based on information provided by the individual companies and in a few cases based on information from public sources.
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Top 400 Asset Managers 2017: A new, improved business?
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Top 400 Asset Managers 2017: A new, improved business?