PGIM's Hyat: Largest firms will continue to pull away from pack

The world's biggest money managers should continue to gain market share at the expense of midsized managers too big to be nimble but too small to make the heavy investments needed going forward, predicted Taimur Hyat, chief operating officer of PGIM Inc., Newark, N.J.-based Prudential Financial's asset management affiliate.

Pensions & Investments and Willis Towers Watson's Thinking Ahead Institute's just-released 2021 rankings of the world's 500 largest managers showed the 20 biggest firms — with AUM ranging from $1.43 trillion to $10 trillion — accounting for 45.2% of the top 500's assets, up from 44% in 2020. It was the third year in a row of gains for the bulge-bracket segment of the market. Managers in 21st through 50th place, with AUM ranging from $1.4 trillion through $627.9 billion, by contrast, saw their share of the top 500 total slip to 20.4% from 21.2% — the sixth year in a row they failed to gain market share. Managers in the 51st through 500th spots saw more marginal market share declines.

Mr. Hyat, in an interview, acknowledged the long history of forecasts that the biggest money managers would eventually eat the lunches of managers one or two rungs lower in the AUM rankings.

But, he noted, after a period of relative quiet over the first 15 years of the new century, industry consolidation — in line with those forecasts — began to pick up significantly six or seven years ago.

This year's spike in volatility and uncertainty has temporarily stalled that consolidation, said Mr. Hyat. Given the current degree of volatility, "it's hard to get a market price for what you're worth," he noted.

Instead, he said, as an investor, the current year is one "for humility" in the face of the considerable unknowns money managers are grappling with, including "whether we'll have a hard or harsh landing, how that will play out in different parts of the world" and so on.

That calls for "scenario-based analysis," both for how to run a portfolio and how to run the business, with a need to be humble in recognizing that none of the scenarios on the table can be counted on with much conviction, he said.

As soon as the situation stabilizes, however, the world's top 20 managers should resume pulling away, "steadily and slowly," from the rest of the pack, he said.

The "need to invest at scale" in areas such as technology, data analytics, regulatory infrastructure and ESG-related capabilities will continue to favor the biggest money managers, Mr. Hyat said.

If now is not a great time to consider merger and acquisition opportunities, "there will be a time coming out of this painful period where those who are stuck in the middle will perhaps consolidate on an accelerated basis, even more so than we saw (before) this 2020 anomaly," he said. In another trend favoring consolidation, many asset owners now are looking to reduce the number of managers they do business with, said Mr. Hyat.

Bigger managers, meanwhile, could prove better able to continue investing through the current turmoil than smaller ones and "the key areas where we're investing … is in private alternatives, particularly on the private credit, direct lending, asset-backed lending space," as well as in real estate debt, where we think there'll be lots of demand, Mr. Hyat said.

In the latest top 500 ranking, PGIM parent Prudential Financial came in 13th, with AUM of $1.74 trillion. The year before it was ranked 12th. Prudential was one of 15 U.S. managers in the top 20, with European managers taking the remaining five spots.

Mr. Hyat said while PGIM remains "quite bullish long-term on the domestic Chinese asset management market opportunity," Chinese managers could facing headwinds in pushing toward the top of rankings anytime soon. Chinese managers have extensive expertise in domestic equities, fixed income and real estate but adding expertise in overseas assets — a key to those managers contending for a top 20 spot — "will require a non-organic move" and geopolitical tensions now make an M&A deal between a Chinese and a U.S. asset manager unlikely, he said.

The latest rankings list the Postal Savings Bank of China, in 44th place with AUM of $682.3 billion, as the biggest Chinese manager, with two more — Ping An Bank and E Fund Management — with more than $400 billion each Over the long-term, China's market is set to become so large that domestic managers on the mainland will push into the top echelons of the rankings, he predicted.