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The Ever Evolving Asset Management Industry An Industry Review at 2013 and Beyond Mark R. Anderson, CFA National Investment Services, Inc.

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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:

1 The Ever Evolving Asset Management Industry An Industry Review at 2013 and Beyond Mark R. Anderson, CFA National Investment Services, Inc.

2 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

3 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.,  Associated Trust Company,  Associated Bank,  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

4 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

5 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 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 7 Returns of Publicly Traded Asset Managers Highly Correlated to Stocks T ITANIUM A SSET M ANAGEMENT Source: Bloomberg

8 8 Source: Lipper, AllianceBernstein, Citi Research A Large Industry in Slow Growth Mode T ITANIUM A SSET M ANAGEMENT

9 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

10 ETF’s are Gaining Popularity and Margins are Pressured Source: ICI, Citi Research T ITANIUM A SSET M ANAGEMENT 10

11 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 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 = ; and, 2) ETFs = TD Data through September 2012 Source: Strategic Insight Simfund, Citi Research

13 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 14 While the U.S. Centric Market is Set to Expand Globally… T ITANIUM A SSET M ANAGEMENT Source: Strategic Insight, Citi Research

15 T ITANIUM A SSET M ANAGEMENT 15

16 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 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 18 …Rates Have Collapsed (10 Year U.S. Treasury) T ITANIUM A SSET M ANAGEMENT

19 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

20 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

21 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

22 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

23 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

24 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

25 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 ( ) Executive search by Firm Type (%) 25

26 T ITANIUM A SSET M ANAGEMENT Almost all incremental US institutional revenues will come from alts… Projected US Institutional Flows & Revenues Cumulative Sources: Casey Quirk Analysis Flows: Revenues: $ billions 43% of Flows 71% of Incremental Revenues 26

27 T ITANIUM A SSET M ANAGEMENT Questions? Thank You! 27

28 T ITANIUM A SSET M ANAGEMENT Appendix  Key Attributes of Investment Firms  Projected Asset Flows by Client Type 28

29 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

30 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

31 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 32 Source: Lipper, AllianceBernstein, Citi Research Shifting Sands T ITANIUM A SSET M ANAGEMENT


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