AUM rises 10.2%, but high-growth era could be over

The world's 500 largest money managers saw their combined assets under management rise 10.2% to $131.7 trillion in 2021, in what will likely mark the close of a long period of macroeconomic policy tailwinds for the industry.

Today, amid greater uncertainty, significant market volatility and growing awareness of systemic risk, asset owners will have to think harder about which managers will be able to deliver the returns they need in a challenging, low-return market environment, said Marisa Hall, London-based co-head of Willis Towers Watson's Thinking Ahead Institute, in an interview. Big managers and smaller boutiques alike should continue to find opportunities in that environment, she said.

The latest annual rankings by Pensions & Investments and the Thinking Ahead Institute showed the big for the most part getting bigger in 2021. The top 20 managers in the rankings posted relatively strong AUM growth of 13%, lifting their share of total assets to 45.2% from 44% the year before. For the 10 years through the end of 2021, meanwhile, the AUM of the 20 biggest managers saw annualized gains of 9.3%, well above the corresponding figure of 7.6% for the top 500.

The remaining 480 managers in the rankings saw their share of top-500 manager AUM drop, with firms ranked 21st to 50th falling to 20.4% from 21.2% the year before — the sixth year in a row they failed to gain ground in contrast to three consecutive years of gains for their bigger brethren. The next 200 managers saw their share of total assets dip to 29.1% from 29.3% with the bottom 250 falling to 5.3% from 5.4%.

BlackRock Inc., Vanguard Group Inc., Fidelity Investments and State Street Global Advisors retained the top four spots in the rankings for 2021, a year which saw the growth of passive investments outpace active 12.1% to 9.5%.

Those top managers "are just getting bigger and the U.S. continues to dominate in that space," Ms. Hall said.

The combined assets of the 15 U.S. managers in the top 20 surged to $48.7 trillion, up 17.7% from the prior year, when the mix was only 14 U.S. managers and six European managers.

In the latest rankings, Boston-based Wellington Management Co. LLP, with $1.4 trillion, climbed two spots to 20th place, while Paris-based Natixis Investment Managers, with $9 billion less in AUM, slipped to 21st place from 20th.

In the only other high-level change, Atlanta-based Invesco Ltd., with $1.6 trillion in AUM, rose to 15th place from 21st the previous year, while Wells Fargo — in 17th place the year before — fell out of the top 20 as the firm spun out its Wells Fargo Asset Management unit under the name Allspring Global Investments. Allspring, with $574.3 billion in AUM, took the 53rd spot in the latest rankings.

The combined assets of the remaining five European managers in the top 20 dropped 4.4% from the year before to $10.8 trillion.

Ms. Hall pointed to the absence in the latest rankings of 218 managers included in 2011's top 500 tally as a sign of industry consolidation.

Not surprisingly, perhaps, the bulk of that cull involved bigger competitors absorbing smaller managers.

The biggest managers, by contrast, continue to exhibit considerable staying power, with 20 of the latest rankings' top 25 managers among the top 25 a decade ago as well. And the remaining five weren't far behind, ranging from 27th to 38th in the rankings for 2011.

Some of the managers rising fastest in the rankings over the past five years — to either enter the top 50 or advance within that competitive space — did so with the help of sizable acquisitions, in line with what the Thinking Ahead Institute's report described as a continuing pickup in the pace of consolidation.

Among them, Toronto-based Brookfield Asset Management jumped to 43rd from 73rd five years before, in part on the strength of its September 2019 acquisition of Oaktree Capital Group LLC and its $120 billion in AUM at the time. San Mateo, Calif-based Franklin Templeton Investments rose to 17th place from 29th place with its July 2020 acquisition of Legg Mason Inc.'s more than $800 billion in AUM. And Morgan Stanley Investment Management, which rose to 18th place from 26th, acquired Boston-based Eaton Vance Corp. and its more than $500 billion in AUM, in March 2021.

Some industry veterans say big managers should continue to have advantages in the more difficult environment that dawned this year, where many are looking to devote resources to technologies such as blockchain as well as data analytical capabilities.

Ms. Hall noted that among 76 non-U.S. asset managers her team surveyed from the latest rankings, roughly three-quarters increased spending last year on technology, big data and cybersecurity.

But as always, she said, there will remain room for nimble, focused boutiques at the other end of the spectrum.

Emmanuel Pitsilis, Singapore-based Asia-Pacific co-head with Partners Capital, a global outsourced chief investment officer firm with roughly $45 billion in assets under management, said when it comes to market segments such as private equity or hedge funds, "while we continue working with a number of larger funds, the majority of our relationships are with smaller, manager-owned funds that tend to have less than $1 billion in assets."

Others predict the supermarket model will continue to have legs.

"You really need the full range of solutions for clients or you run the risk that they're going to go elsewhere," said Olwyn Alexander, Dublin-based global asset and wealth management leader with PricewaterhouseCoopers.

By way of example, active managers that have eschewed passive capabilities risk losing clients looking for those capabilities as part of a one-stop-shop solution, she said.

In the more volatile, uncertain environment that has emerged in 2022, managers able to meet client demands and expectations in fast-growing areas such as ESG could have a competitive advantage, said Ms. Alexander. Managers feeling the pain from stagnating top-line revenues now would do well to double down on their ESG focus, she added.

An Oct. 10 report by PwC based on a survey of 250 asset managers and 250 institutional allocators forecasted annualized growth for ESG-focused AUM of 12.9% through 2026, three times the 4.3% pace the firm posits for the broader industry in its base-case scenario.

"The reality is sustainability is here to stay, ESG is in demand," Ms. Hall agreed. And innovation on that score could focus on managers working to ensure they have the data on hand to report on the impact that their investments are having, she said.

Ms. Alexander said one of the surprising findings of PwC's recent survey was that U.S. asset owners have largely closed what had been a wide gap with their European counterparts when it comes to interest and belief in ESG-related goals.

Among those findings: 81% of U.S. asset owners surveyed said they're looking to increase ESG-focused allocations over the next two years, only marginally off the 83% pace for European asset owners, she said. "I would have always said Europe was a good degree ahead" but there has definitely been a pickup in terms of sentiment and demand relative to where it would have been even two to three years ago, she said.

In the U.S., however, there has also been a pickup in political pushback over ESG this year, with local politicians threatening to pull public pension fund allocations from managers whose climate change policies are perceived to clash with local oil and gas interests, Ms. Hall and Ms. Alexander noted. For managers facing the loss of public fund mandates, "how to make stakeholders happy while maintaining the courage of your convictions" will be a challenge, Ms. Hall said.

Other areas PwC believes will offer relatively attractive opportunities in a low-growth environment over the coming five years are alternatives, with an expected compounded annualized AUM growth rate of over 5% and passive strategies, at 7%, Ms. Alexander said.

In other findings from the P&I/Thinking Ahead Institute, North American-based managers experienced an 11.7% increase in AUM for the latest year to $78.9 trillion, or 59.9% of total top 500 AUM.

Managers based in Europe, including the U.K., had 4.1% growth to $36.2 trillion while Japan, on the back of the yen's 11.5% weakening vs. the dollar for the year, saw its managers' AUM in dollar terms slip 1.1% to $6.1 trillion. The rest of the world, dominated by Chinese managers, saw growth of 32.4% to $10.5 trillion.

According to the Thinking Ahead Institute's report, over the past decade, managers in the U.S. and China have seen the biggest gains in market share.

As of the close of 2021, U.S. managers oversaw 54.7% of top 500 assets, up from 47.8% a decade before, while Chinese managers accounted for 4.2% of the total, up sharply from a scant 0.3% at the end of 2011. A few other countries, including Switzerland and South Korea, saw marginal gains but of the 13 other countries listed, 12 saw their share of top 500 AUM shrink over the decade.

For the most recent five years, Chinese managers enjoyed relatively strong momentum, with their share of total AUM more than doubling to 4.2% from 1.9%, despite a bear market for Chinese stocks last year, while U.S. managers made more modest progress, climbing to 54.7% from 53.5%.

Over those five years, Chinese manager AUM posted annualized growth in local currency terms of 27.3%, more than double the U.S. manager clip of 10.7%. Only Norway, at 23.4%, and India, with 23.3%, were within hailing distance.

The average asset allocation for the top 500 managers, meanwhile, was 46.5% for equities, 33.9% for fixed income, 12.5% for cash and alternatives and 7.1% for "other" investments.