Global Asset Management Industry

Source:

Asset Management 2020 A Brave New World

The World’s 500 Largest Asset Managers – Year end 2014

 

Total value of Assets

スクリーンショット 2016-08-16 2.39.07US dominates, Japan and European markets lose shares

スクリーンショット 2016-08-16 1.40.50.png

According to PWC, over the past 13 years, there’s a strong correlation between GDP and overall AuM growth

However, the 5.15% nominal global GDP growth forecast by PWC seems impossible today

スクリーンショット 2016-08-16 1.46.55.png

Next time we may use updated AUM data to compare with GDP grow rate and see the effect of QE. (world bank data)

PWC forecasted AUM in South America, Asia, Africa, Middle East (SAAAME) economies are set to grow faster than in the developed world in the years leading up to 2020

スクリーンショット 2016-08-16 1.11.39.png

However India and South Africa didn’t look well, and they partly suffered from a strong US dollar with Japan, Brazil and Norway

China market is substantial, even though RMB dropped a lot since 2015

スクリーンショット 2016-08-16 1.16.58.png

Assets managed for Canadian, Asian and Japanese clients grew strongly, an indication of global diversification in such areas

PWC forecast SWFs will have a more prominent role in global capital markets

スクリーンショット 2016-08-16 2.18.38.png

スクリーンショット 2016-08-16 2.17.21.pngHowever the Assets of global sovereign wealth funds halted since 2014

So do PWC think about Global pension fund assets, while I failed to get the recent data

 

To be concluded, with US dollar strength and lower growth rate, the global AUM glooms

/China market may be expected under entering MSCI and RMB internalization

 

Asset Allocation

スクリーンショット 2016-08-16 1.19.33.pngEquity assets have not been outdated, while fixed income and real estate have a faster growth.

The most important factor may be passive investment.

スクリーンショット 2016-08-16 2.49.14

PWC forecast passive management will get 22% by 2020. It might get wrong again, though in another way. Passive funds has achieved 19% in 2015.

スクリーンショット 2016-08-16 1.33.27.png

スクリーンショット 2016-08-16 3.01.39

While growth of alternative is lower than expects, at only 3% yoy, according to Willis Towers Watson.

 

Industry Competition

スクリーンショット 2016-08-16 2.39.20

Top 20 gradually grab some share owned by 51-250

スクリーンショット 2016-08-16 1.27.22.pngIndependent managers get equal position with bank-owned ones

スクリーンショット 2016-08-16 1.30.32A reference for job hunting

 

 

Advertisements

Quality over Quantity

A paper that discuss the topic of passive v.s. active from AB Investments

 

Quality over Quantity

https://www.abglobal.com/Research-Publications/CMA-created-content/Investments_US/Instrumentation/Quality-Over-Quantity.pdf

 

The common refrain: “Passive is cheaper and less risky”, but

Diversification

スクリーンショット 2016-08-03 19.35.38

Beyond a threshold of 20-35 stocks, the marginal benefit is largely reduced.

スクリーンショット 2016-08-03 19.53.00.png

Among US equity managers, those with 35 or fewer stocks tend to have higher active share and higher annualized rolling excess return over the last 5&10 years

By using research to focus on fewer but higher quality stocks, concentrated investing has the potential to produce substantial alpha

(however, it’s difficult to find how active a manager is. Managers can claim to be active but really run benchmark-hugging portfolios)

 

Hidden risk of Passive

スクリーンショット 2016-08-03 20.06.13.png

Passive portfolios would have followed along for the ride (market capitalization skewed), not only sectionally but also regionally (by the end of 1988, Japanese stock had grown to 44% of MSCI World index)

higher volatility, especially at market peaks, makes the true cost and risk

 

Concentrated investing may reduce downside risk

スクリーンショット 2016-08-03 20.16.20.png

Investors who stick with a concentrated approach over long run have been rewarded with better returns with less downside volatility

It makes sense to combine passive strategies with highly concentrated strategies that identify exceptional stocks

(But this time may be different?)

 

 

Active vs. passive is passé

Reasons back passive investing:
1. financial collapse that fund managers never foresee;
2. reliable option under new regulatory requirements;
3. (This is the most important one) two out of three active managers again underperform the S&P 500 benchmark in 2015 (why am I saying again)

 

A New Perspective on the Active–Passive Investing  

http://www.institutionalinvestor.com/blogarticle/3569487/blog/a-new-perspective-on-the-activepassive-investing-debate.html?ArticleID=3569487#/.V4lfmpOLRE4

 

Recent trends:
1. Fidelity, long known for being an active manager,  recently announced it is cutting fees for 27 index mutual funds and exchange-traded funds to attract more assets into passive strategies.
2. Blackrock’s CEO said last month he expects consolidation in the asset management business because too many managers can’t generate returns higher than their benchmarks and that the shift to indexing will be “massive.”

You can’t criticize them for the move: Investors have spoken, and increasingly they favor passive funds over higher-cost active funds that aren’t providing the value they hoped for.

You also can’t criticize investors: in this persistently low-interest-rate environment,  too big a percentage of the investors’ returns is consumed by management fees.

(So, fxxking central bank!)

 

But: 

Up to 86 percent of active funds underperform their benchmark, but by definition 100 percent of truly passive funds underperform theirs!

In terms of benchmark comparison, It is a mathematical certainty that, after fees, more assets will underperform the benchmark than outperform!

Moreover:

Investors and regulators alike are overlooking a key point: Passive investing wouldn’t make anybody any money without active investing!

The media question the value of active management, but they never bother to acknowledge that without it passive investment wouldn’t exist!  (price discovery)

And active managers search for growth and value and to the proper purpose of the capital markets — to move capital to where the best risk-adjusted returns can be found.

 

Conclusion:

Moral thing works nothing and low interest seems not to end shortly, therefore active management is doomed to continue to shrink unless active managers can discover a fee model that is more commensurate with the value they provide.

When comes the main reversion?

“According to Morningstar, assets under management in passive mutual funds have skyrocketed 320 percent globally to $6 trillion since 2007. The growth of actively managed funds meanwhile has slowed significantly, with a like-for-like growth rate of 54 percent and total assets of $24 trillion.”

Maybe it’s the time when it becomes a half-half…