April 8, 2011

Sub-Advisory Market Is Robust, FRC Data Show

Longer-term outlook is positive

The sub‐advisory market last year rebounded to levels seen before the onset of financial crisis in 2008, achieving an all-time high of $1.7 trillion in assets, according to a statement issued Wednesday by Financial Research Corporation (FRC).

Lynette DeWitt, the firm’s director of sub‐advisory research, presented the findings on Wednesday at the Financial Research Associates 11th Annual Sub‐Advised Funds Forum in Boston, the statement said

“Sub‐advised products now represent 13.4% of the industry for mutual funds, and 42% for variable annuities,” DeWitt said at the forum. “These figures are up from 12.9% for mutual funds and 40% for variable annuities at year‐end 2009. In fact, market growth has been so strong that later this year we will be revising our 2015 forecast upward.”

DeWitt also said that a record high of some $120 billion in mandate changes occurred in 2010, with nearly two-third of that activity coming in the mutual fund space. Now, she said, “we see sponsor firms giving sub‐advisor changes of the last year time to settle in, and foresee the level of manager changes moderating in 2011.”

FRC maintains a 10‐year history of mutual fund and variable annuity sub‐advisory asset growth, according to the statement.

In her comments, DeWitt discussed several of the key trends in the industry over the past decade.

  • A 10% compounded annual growth rate in mutual fund assets
  • An 11% compounded annual growth rate in variable annuities
  • Greatest growth rate in sub-advised mutual fund assets led by corporate bond funds, international bond funds and international equities.

Looking ahead, DeWitt said: “We see the subadvisory market for the remainder of 2011 being a competitive environment, with performance pressure escalation, and broader market challenges. Toward the broader horizon, our view is of a market that will continue to grow along historic patterns, with relatively greater increases on the way for sub‐advised variable annuities.”

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