Presentation on theme: "The Ever Evolving Asset Management Industry An Industry Review at 2013 and Beyond Mark R. Anderson, CFA National Investment Services, Inc."— Presentation transcript:
The Ever Evolving Asset Management Industry An Industry Review at 2013 and Beyond Mark R. Anderson, CFA National Investment Services, Inc.
Agenda The Titanium Family of Companies: Boyd Watterson Asset Management National Investment Services Titanium Real Estate Advisors Wood Asset Management Cleveland, OH / Charlotte, NC Chicago, IL / Milwaukee, WI Chicago, IL Sarasota, FL 1.Introduction 2.Historical Look at Consolidation Trend Among Asset Managers 3.Current Industry Statistics 4.Trends in Asset Allocations & Expected Capital Flows 5.Questions 2 T ITANIUM A SSET M ANAGEMENT
The Titanium Family of Companies: Boyd Watterson Asset Management National Investment Services Titanium Real Estate Advisors Wood Asset Management Cleveland, OH / Charlotte, NC Chicago, IL / Milwaukee, WI Chicago, IL Sarasota, FL Mark is the co-manager of the NIS Preferred Stock Fund. He also manages municipal bonds in our fixed income portfolios. Specializes in equity futures and ETF trading. Writes our Economic and Fixed Income market updates. National Investment Services, Inc., 2000- Associated Trust Company, 1995-2000 Associated Bank, 1993-1995 University of Wisconsin, Stevens Point, BS, 1991 13 years with the firm 20 years of investment experience 3 T ITANIUM A SSET M ANAGEMENT Mark R. Anderson, Vice President, CFA
Our Team Titanium is comprised of 72 employees 30 investment professionals with an average of 21 years in the industry 9 veterans dedicated to our client and consultant relationships 14 CFA charter-holders Our Philosophy Titanium offers our clients disciplined institutional investment strategies with a high level of personalized service We frequently design customized investment solutions Who We Are Titanium Asset Management is a collection of four asset management firms, each primarily focused on a particular asset class Offers Fixed Income, Equity and Alternative Investments Offers Real Estate: QPAM Advisory Services Over $8.7 billion in assets under management Clients include: Institutional, High Net Worth, and SMA Data as of 9/30/12 The Titanium Family of Companies: Boyd Watterson Asset Management National Investment Services Titanium Real Estate Advisors Wood Asset Management Cleveland, OH / Charlotte, NC Chicago, IL / Milwaukee, WI Chicago, IL Sarasota, FL 4 T ITANIUM A SSET M ANAGEMENT 4
Two Decades of Consolidation Over almost 20 years, the 37 financial companies listed below have been folded into four extremely large and complex concerns with global reach and a one- stop-shopping approach to the financial services. 5
6 Asset Managers Tend To Work Best During More Robust Economic Stages… Source: FactSet, Bloomberg, Haver, Company Reports and Citi Research T ITANIUM A SSET M ANAGEMENT
7 Returns of Publicly Traded Asset Managers Highly Correlated to Stocks T ITANIUM A SSET M ANAGEMENT Source: Bloomberg
8 Source: Lipper, AllianceBernstein, Citi Research A Large Industry in Slow Growth Mode T ITANIUM A SSET M ANAGEMENT
U.S. Retail is Saturated…at Least When it Comes to Mutual Funds Note: share defined as % of trailing 12-month industry U.S. retail flows from largest managers ranked by AUM; LT MF excludes ETFs; Data through July 2012 Source: ICI, Strategic Insight Simfund, Company Reports, Citi Research T ITANIUM A SSET M ANAGEMENT 9
ETF’s are Gaining Popularity and Margins are Pressured Source: ICI, Citi Research T ITANIUM A SSET M ANAGEMENT 10
11 Source: Lipper, AllianceBernstein, Citi Research Active Managers Recent Performance Has Been Like Flipping A Coin; No Wonder Passive Is Taking Share T ITANIUM A SSET M ANAGEMENT
12 ETF’s are Growing Faster than Mutual Funds During the Early Years T ITANIUM A SSET M ANAGEMENT Note: Cumulative flows for: 1) MFs = 1980-1999; and, 2) ETFs = 1993-2012TD Data through September 2012 Source: Strategic Insight Simfund, Citi Research
13 Equity sector correlations are high T ITANIUM A SSET M ANAGEMENT Note: 30 Day correlation as of Dec. 7, 2012 Source: ConvergEx Group, Bianco Reasearch, L.L.C.
14 While the U.S. Centric Market is Set to Expand Globally… T ITANIUM A SSET M ANAGEMENT Source: Strategic Insight, Citi Research
T ITANIUM A SSET M ANAGEMENT In the U.S., Institutional Funds are Changing in Different Ways Corporate funds are faced with huge funding gaps. – De-risking DB plans – Risk management is front and center – Shifting to DC Public funds are also faced with huge funding gaps and searching for ways to reach unachievable goals. – Political pressures growing – Focus on returns to close funding gaps – Staying with DB plans – for now The endowment model has been reaffirmed. – Closer link to sponsoring institution – Renewed appreciation for liquidity – Alternatives continue to dominate Channel management has become more important 16
17 Pension Plan Funding Gaps are Wide… T ITANIUM A SSET M ANAGEMENT Note: Funding ratio¹ = ratio of asset values to liabilities, representative of a typical pension plan. ¹ The asset and liability returns are for a hypothetical Moderate Risk portfolio compared to the return of BNY Mellon's "Typical" Pension Liability Index, using Reported Value discounting.
18 …Rates Have Collapsed (10 Year U.S. Treasury) T ITANIUM A SSET M ANAGEMENT
Extended Duration of Investors’ Discontent Fear and disillusionment as risk failed to generate returns in 2000’s End of “wind at your back” 30 year secular return environment for bonds Competing factors – need for more income but stronger risk aversion Greater demand for outcome-oriented strategies rather than relative return 19
Large U.S. Public Funds Are Adding Alternatives T ITANIUM A SSET M ANAGEMENT Source: Towers Watson, various pension fund CAFRs, various company conference calls, Citi Research 20
Strong (Private Equity) Returns Attract Attention T ITANIUM A SSET M ANAGEMENT Data through 6/30/12 Note: Net return = pooled end-to-end return, net of fees, expenses, and carried interest. Source: Strategic Insight, Cambridge Associates, Citi Research 21
Investors Like Predictability T ITANIUM A SSET M ANAGEMENT Data through 11/30/12 Source: Company reports Source: Strategic Insight, Cambridge Associates, Och-Ziff, Citi Research 22
And so is the Rest of the Wor ld Source: ICI, Citi Research T ITANIUM A SSET M ANAGEMENT Note: Global Pension Assets account for Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, UK, US. 23
T ITANIUM A SSET M ANAGEMENT Traditional Equity/Fixed Traditional Equity/Fixed Alternative Traditional and “Alternative” Managers Are Converging Rationale : Investors and consultants re-examining the necessity of constraints on managers Some success by eliminating constraints where there is little economic rationale such as liquidity issues, style box adherence, no shorting and leverage allowed Following hedge fund “invest wherever and in any way” approaches, traditional managers are transitioning into absolute return-oriented approaches Traditional Equity/Fixed Traditional Equity/Fixed Alternative 24
T ITANIUM A SSET M ANAGEMENT Multi-capability firms are more competitive… Average Firm Allocations 2010 (%) Source: eVestment Alliance, Pensions & Investments, Casey Quirk Analysis Source: David Barrett Partners analysis Note: 177 firm sample size ($19T in AUM). Results are the average for a sub-set ($6.6 T in AUM) comprising “more competitive” top, and “less competitive” bottom quintiles in terms of 3 year revenue growth (2007-2010) Executive search by Firm Type 2009-2011 (%) 25
T ITANIUM A SSET M ANAGEMENT Almost all incremental US institutional revenues will come from alts… Projected US Institutional Flows & Revenues 2011-2015 Cumulative Sources: Casey Quirk Analysis Flows: Revenues: $ billions 43% of Flows 71% of Incremental Revenues 26
T ITANIUM A SSET M ANAGEMENT Questions? Thank You! 27
T ITANIUM A SSET M ANAGEMENT Appendix Key Attributes of Investment Firms Projected Asset Flows by Client Type 28
T ITANIUM A SSET M ANAGEMENT Investment Firms Can Be Thought of as Advisors or Boutiques Advisor Many products, multiple-asset classes. Multiple distribution channels and geographies. Investment excellence defined by value proposition which includes advice on liabilities, cash flow and fundamental investment objectives, risk tolerance and controls, and strategic decision-making. Products achieving strong out-performance at a moment in time provide significant positive asset flows and allow “boutique sales to a broad range of clients, with a transcending value proposition and investment excellence philosophy.” Sticky relationships include multiple mandates to limit client loss during periods of underperformance. Clients include largest and most sophisticated global institutional investors. Sales and relationship management requires sophisticated consultative investment professionals skilled at identifying client needs. Advisory services are an explicit business offering, utilizing a fully developed range of sales executives, relationship managers, product specialists and advisers to service clients. Boutique Narrow product range. Investment excellence defined by value proposition based on superior investment returns. When investment returns are strong, explosive growth occurs, generating rich economies of scale but often straining the organization at the same time. Periodic significant periods of weak investment returns. During periods of underperformance, high risk of losing assets and clients due to single product focus. Vulnerability to key man risk and challenging successions/generation shifts. Client service excellence consists of clarity in communicating the firm’s investment strategies, ensuring clients understand risks, and will tolerate inevitable periods of weak returns. Advisory services are not offered, and limited use is made of product specialists. Key Attributes of Advisory and Boutique Investment Firms 29
T ITANIUM A SSET M ANAGEMENT U.S. equity and domestic core/core plus may continue to face shrinking flows Continued low interest environment forcing clients to consider higher yielding/higher risk (emerging, non-dollar, MLPs, high yield) Consultants expect more of these searches to involve manager replacement rather than new/increasing allocations 30
T ITANIUM A SSET M ANAGEMENT Domestic Growth Is Expected to Vary Sharply Across Client Segments and Asset Classes ¹ Includes: commodities, infrastructure, energy investments, timber, farmland and FX Allocations. ² Refers to Outcome oriented funds for IO-DC and Global Tactical Asset Allocation Funds and other segments Source: McKinsey North America Institutional Asset Management Head Hap 31
32 Source: Lipper, AllianceBernstein, Citi Research Shifting Sands T ITANIUM A SSET M ANAGEMENT
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