BS AG remained the world’s largest money manager in terms of assets under management, with $2.45 trillion, to lead the Pensions & Investments/Watson Wyatt Worldwide ranking of the world’s 500 largest money managers in 2006.
The Zurich, Switzerland-based firm reported a 21.7% rise in assets under management in 2006, while the 500 firms combined saw an 18.9% increase in assets to $63.7 trillion.
Growth in assets was driven by continued strong equity market performance, while fixed-income gains were lackluster in comparison, said Craig Baker, senior investment consultant and global head of manager research at Watson Wyatt Worldwide in Reigate, England. The relative weakness of the dollar, compared with the British pound and the euro, also boosted asset growth for many non-U.S.-based firms and managers with an international client base. There is now only one firm among the top five managers whose parent is based in the United States.
The significant level of mergers-and-acquisitions activity during 2006 also led to many changes among the 20 largest managers.
Managers in the top 20 experienced average growth of 22.9% in assets under management and increased their share of the 500 managers’ total assets to 38.7%, from 37.4% in 2005.
Barclays Global Investors, a San Francisco-based firm with a British parent, retained second position with a 19.9% gain in assets under management to $1.8 trillion.
Moving up one spot to third place was
State Street Global Advisors of Boston, with a 21.3% rise in assets under management to $1.75 trillion. AXA Group of Paris moved into the top five for the first time, close behind SSgA, with a 38.1% rise in assets under management to $1.74 trillion. The increase was due in part to the acquisition of Winterthur (Switzerland) Group from Zurich-based
Credit Suisse Group.
Allianz AG of Munich, Germany, dropped two places to fifth, although its assets under management grew 14.3% to $1.71 trillion. The group’s heavy exposure to fixed income meant that it was unable to build assets as fast as some of its more equity-focused peers, said Marna Whittington, chief operating officer at Allianz Global Investors of Munich.
The Merrill Lynch Global Broad Market Corporate Bond index rose 7.2% in 2006. Among equity markets, European stocks were the best performers, with the Morgan Stanley Capital International Europe index showing a 33.7% return last year. Meanwhile, the MSCI Emerging Markets index rose 32.2%, the MSCI World index was up 20.1%, MSCI U.S. gained 14.7%, and MSCI Japan rose 6.2%.
BlackRock Inc. of New York moved into the top 10 for the first time, taking the 10th spot with a 148.4% rise in assets under management to $1.12 trillion following its landmark acquisition early last year of Merrill Lynch Investment Managers of Plainsboro, N.J. In last year’s survey, prior to the deal, Merrill Lynch ranked 21st with $544 billion in assets under management, and
BlackRock was 32nd with $452 billion.
Credit Suisse fell out of the top 10, slipping to 11th place with assets under management of $1 trillion at the end of 2006. Over the last five years, the group has slipped in the rankings, from third at yearend 2000. Part of the slide in assets is due to last year’s sale of Winterthur.
Credit Suisse spokesman Marc Dosch declined to comment.
Other significant moves in the top 20 include
Fidelity Investments of Boston, which slipped to sixth, from fifth, after a 15% rise in assets to $1.6 trillion; and Paris-based Natixis Global Asset Management LP — created from the 2006 merger of IXIS Asset Management Group and Natexis Banques Populaires — which ranked 17th with $770 billion in assets. In the previous survey, IXIS ranked 25th, with $512 billion, and NBP ranked 102nd with $126 billion. The
Capital Group Cos. Inc. of Los Angeles remained in seventh despite a 20.4% rise in assets under management to $1.4 trillion.
Ms. Whittington said of her company’s de¬cline over 2005: “We have a little over 70% of our assets in fixed in¬come, so we got very little lift from the markets last year. Companies with a large exposure to equities got a huge lift.”
The company also missed out on last year’s record de¬mand for money market mutual funds among its core German and U.S. client bases, since Allianz doesn’t offer money market products, Ms. Whittington said.
“We are pretty happy with our growth in 2006 relative to 2005. We are not trying to be the biggest, but we are trying to be very good at what we do,” Ms. Whittington added.
AXA Group’s peer-topping rise in assets went beyond the acquisition of Winterthur.
“AXA’s ability to provide our clients with the expertise and services of our two world-class asset managers is reflected by very strong net inflows. We believe this performance demonstrates the quality of our teams and the complementarity of [New York-based AXA subsidiary]
AllianceBernstein [Holding LP]’s global, research-driven investment platforms with AXA Investment Managers multi-expert model,” including AXA Rosenberg, AXA Framlington, AXA Real Estate Investment Managers and AXA Private Equity, Henri de Castries, chief executive of AXA Group, wrote in an e-mailed statement.
Kanesh Lakhani, managing di¬rector at London-based
State Street Global Advisors U.K., attributes the parent company’s growth in assets to its diverse business model.
“In terms of geography, we have a diverse source of clients, we have diverse types of clients, and we have a diverse product range,” Mr. Lakhani said. “That has been a good recipe for us in terms of delivering pretty aggressive growth.”
SSgA’s U.S. business has been growing fast, but its non-U.S. client base has been growing even faster. Last year, non-U.S. business ac¬counted for 40% of SSgA’s revenue, compared with 27% in 2003.
The firm has had to close a number of its active quantitative strategies as a result of strong client inflows and has won new business in 130/30 strategies, cash and currency management, and liability-driven investing, Mr. Lakhani added.
Market conditions over the past five years have been kind to both AXA and SSgA.
Quantitative-equity managers such as SSgA have performed well as a group during the past five years, and much of this can be attributed to the fact that they have typically run mid-cap, value and momentum biases, Mr. Baker said.
“Quant management has been a really good place to be over the last five years due to mid-cap, value and momentum factors. But managers are likely to be facing a head wind going forward,” following the equity and bond market correction of this past July and August, Mr. Baker warned.
“If there is a flight to quality, then style will switch, and large-cap quality could do better than mid-cap-value stocks,” he said.
During the past five years, value equity managers have moved up the rankings. Firms such as Hotchkis & Wiley Capital Management of Los Angeles, LSV Asset Management of Chicago, Arnhold and S. Bleichroeder Advisers LLC of New York and Emerging Markets Management LLC of Arlington, Va., have all moved between 150 and 200 places higher up the ranking since 2001.
Institutional assets are increasing at a faster rate in Europe than in the United States, partly because growing numbers of European pension plans are outsourcing asset management, and new long-term-savings markets are opening up in Central and Eastern Europe, Mr. Baker said.
Still, he isn’t writing off U.S.-based firms. “I think it would be dangerous to draw the conclusion that U.S. managers have slipped” in asset gathering, Mr. Baker said. “There is no doubt U.S. managers are successful in winning non-U.S. business.”
Also, the largest money managers are dominating the industry, as the 20 largest firms have in¬creased assets at a faster rate than the total 500 managers for the first time since 2000, according to Watson Wyatt’s analysis. The almost 23% rise in assets among the 20 largest firms was driven partly by organic growth but also by M&A activity, Mr. Baker said.
While more institutions are willing to hire niche money managers for specialist strategies, smaller pension plans believe they lack the internal resources to monitor many different firms and are willing to outsource asset management to larger firms with a multiasset approach, he said.
The increasing use of liability-driven investing is also accelerating concentration among the largest firms — which are best able to manage liabilities and assets in-house, Mr. Baker said. Increased demand for LDI has especially helped those managers owned by insurance companies such as AXA Group and Allianz.
For the second straight year, the proportion of independent asset managers to bank- and insurance-owned firms within the top 20 remained unchanged, with banks owning just less than 50% of the money managers in the rankings. The number of independents has increased gradually since 2002.
