Special report active management_ the active game _ magazine _ ipe


Pension scheme members, insurance policyholders and private investors might be perplexed if they knew how much it cost to save for retirement. Jpy to usd exchange rate history As savings flow from pension schemes into the global economy via the stock markets, a huge dollop gets channelled to the money managers every year for their own benefit. Convert us dollars to euros In 2014, the net revenue from asset management globally was $213bn (€201bn), according to Morgan Stanley.

Gbp usd live chart Of that sum, $83bn was creamed off as profit.

At this level, a profit ratio of 37%, private equity houses and specialist purchasers such as AMG, Dyal and Northill Capital have moved into the sector, looking to take stakes in the best active managers.

It could be argued that all these woes of traditional active managers begin on their own production line; not enough of them deliver on their promise. Aud to usd conversion Goldman Sachs finds only 36% of equity funds sold to European investors outperformed their benchmark over the past five years. Aed conversion to usd Morgan Stanley goes back further, to the start of 2003. Usd to ngn It finds that for US large-cap mutual funds (aimed at a US audience), only 32% of funds have outperformed the S&P500 consistently on a rolling three-year basis to the start of 2016.

Morningstar’s active/passive barometer suggests asset-weighted 10-year trailing returns for passive funds to the end of 2015 were 7.2% versus 5.9% for active funds. Exchange rate eur usd Citi’s Tam notes that returns for the lowest-fee-quartile composite of active funds were 6.6% – in other words, costs matter, regardless of underlying portfolio performance, which provides a counterpoint to the FCA’s view that “there is no clear relationship between price and performance”.

This situation is not new, however. Gold price in us Investors seem to have serial relationships with active managers, which break down because of disappointing performance, then repair themselves once active managers can demonstrate a few years’ outperformance, then break down again after the next bear market. Usd to vnd Active performance has struggled in the past two years especially, but why might this be anything other than part of the usual cycle? Ten years ago, the traditional industry looked set to be supplanted by hedge funds but, instead, some hedge funds were absorbed into the mainstream while others disappeared as overpromisers or downright frauds.

In support of the analysts, there is proof that Europe’s pension funds are going for alternatives, both in terms of assets and strategies. Usd cad forecast 2016 A glance at the pension fund asset allocation of the continent’s quoted companies demonstrates holdings in long-only equities and bonds have been declining since 2010-11. Convert usd into gbp MSCI Europe constituents’ reported allocation to other assets and strategies – that is, not long-only equities and bonds – has rocketed from 15% to almost 40% over the same period.

More proof can be taken from activity by investment consultants. Usd to inr exchange rate comparison Over the past three years, the major consultants between them have conducted over 200 searches into multi-asset credit strategies (MACS) alone. Hkd to usd MACS can include some niche and Byzantine types of credit. Singapore to usd exchange rate This is where the pressure of demand from pension funds for higher, diversified returns meets the need of asset managers to increase their revenue.

Some houses, however, are already in the right spot. The boxer lyrics Looking at the margins of Oaktree, a debt specialist, or Apollo, in private equity, these houses have no baggage as relative-value managers but possess lots of the expertise in alternatives and real assets that pension funds crave.

The question for mainstream managers in 2017 is therefore similar to the one they faced a decade ago: do they acquire alternative managers to boost business in a ‘lower for longer’ world or try to grow expertise organically? As with hedge funds in the mid-2000s, the problem is that the premier tier Oaktree and Apollo do not need outside help. Future stock market prices They are alternative but well-capitalised, while smaller houses might be biddable for the wrong reasons.

A look at publicly-disclosed M&A in recent years shows mainstream European houses have refrained from buying into alternatives (the busiest buyers have been MAN and AMG). Binary to bcd converter So perhaps the investment bank analysts want to see more deals to help out their colleagues in corporate advisory. Cad usd history The two motives need not be in conflict. Yuan to usd Michael Cyprys and colleagues at Morgan Stanley, for example, point out that growth is the leading factor in explaining asset management stock returns, with more potency than valuation and profitability put together (see figure). Decimal calculator that shows work Unbundling growth into separate factors, it is organic growth that is most telling.

Here is the nub, according to Turner at Goldman Sachs, the growth in assets under management from 2009 onwards came from asset inflation rather than new business. Market futures That is an inferior kind of organic growth.

So the CEOs and shareholders of asset managers can thank central bankers for boosting their portfolios. Usd to cad exchange rate But to keep the business going forward in harsher times ahead, Turner generally advocates spending the spare cash that quantitative easing indirectly brought.

He gives Schroders as a good example, where current surplus exceeds €1.2bn and in the present environment earns the company little. Nzd usd investing Turner calculates that Schroders’s return on equity (ROE) is 17% but not including surplus capital is 29%.

Schroders, for its part, has identified private assets and alternatives together as one of its six target areas. Bloomberg pre market futures But the company is healthy and the new CEO, Peter Harrison, might want to tolerate that drag from surplus and wait for targets to weaken before spending. Usa to india exchange rate After all, the biggest recent deal – Amundi’s purchase of Pioneer – occurred because Pioneer’s parent, Unicredit, needed the €3.55bn to shore up its core tier-one ratio. Binary translator to text There are plenty of other European banks, starting with Deutsche at the top, that are still suffering from the aftershocks of the global financial crisis and might have to part with decent asset management subsidiaries to raise cash.

Acquisitions are not essential for those with enough time. Convert usd to pounds Europe’s traditional managers have got better at organically creating alternatives. Gender quotes They are under way with MACS, while diversified growth funds are mature examples of how relative-value managers have gradually absorbed the techniques vaunted by hedge funds into their own culture. Equity meaning in economics The same may eventually be true of private equity and infrastructure.

There are cautionary tales. Stock market futures fair value Standard Life Investments ’ GARS could be considered Europe’s most successful alternative fund. Learning articles But the irony of this strategy is that the fortunes of the company are highly correlated to its success. Cnbc stock market futures In 2015, 92% of net new sales came from GARS.

A similar concentration risk has occurred at Barings (dynamic asset allocation) and Aberdeen (emerging markets) and might occur at Nordea. Gbp to usd rate Although its Stable Return fund has now been gated, the problems will arise should performance suffer. Pound exchange rate Too many active managers – across the spectrum and including alternatives – are too reliant on one or a couple of strategies. Us stock market futures live It is no wonder BlackRock, in contrast, with its spread of strategies including passive, is so popular with analysts. Aed to usd chart Diversification works.

The ramifications of a single strategy’s underperformance brings us back to the cycle of trust and mistrust between pension funds and active managers. Gbp to usd yahoo The cycle follows bull and bear markets. Cool pictures But personal savers’ habits are even more fickle and random, and their actions will count for more as the onus for adequate retirement provision falls to individuals.

The reason why regulators might adopt a tougher attitude to active management in years to come is that the masters of regulators, politicians, do not want a campaign of disgruntled personal pension savers destabilising their regime. Jpy usd yahoo State benefit systems are already creaking under an ageing population – they do not need extra claims.

And so, after decades of light-touch regulation, financial authorities are finally becoming perplexed with poor-value active management. Binary representation Individuals cannot be left alone to make long-term choices and there are not enough alternatives and absolute-return strategies to save the day for everyone. Dollar rate today in india The big question is where those profits from relative-value managers go if the industry is shrunk.

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