Midsize Asset Managers Have Edge in Overseas Expansion

Cogent Reports finds willingness to tailor approach to specific markets key to success

Midsize U.S.-based asset management firms are poised to win more business in overseas markets, according to a new report.

The Cogent Reports study from Market Strategies International noted that American institutions face several hurdles in seeking opportunities abroad, including home-country investment bias and widespread satisfaction with incumbent providers.

Midsize firms are better positioned than their larger counterparts to overcome these challenges because of a greater willingness to change their current manager lineup, the report found.

According to the report, manager selection criteria and preferences for nondomestic equities and fixed income can vary significantly by country, thus requiring a tailored approach by firms planning to enter specific markets.

When institutions were asked how likely they were to add managers in the next year, 58% of those with $250 million to just under $1 billion in assets across Australia, Canada and 10 European countries said they were likely to do so, with 32% planning to add three or more.

In contrast, 49% of institutions with $1 billion or more in assets in those same countries said they planned to add new managers next year, and nearly all of that group said they would add just one or two.

A similar dynamic emerged among institutions planning to drop managers. Thirty-eight percent of midsize institutions expected to let one or two managers go over the next year, but only 2% of larger institutions expected to terminate any existing relationships.

The report said a significant number of U.S.-based asset managers had achieved a broad level of awareness and consideration, placing them in contention for winning new mandates in multiple countries abroad.

“The first step for any product line extension in a new market is to build brand awareness,” Linda York, a vice president in Cogent’s syndicated division and author of the study, said in a statement.

“Once that has been achieved, managers need to build a credible and compelling story, emphasizing the capabilities and characteristics considered most critical to their chosen markets.”

Cogent Reports interviewed a sample of 687 institutional investors, which were recruited from a variety of business telephone lists in each country. Respondents were required to be senior-level investment professionals managing the equivalent of $20 million or more in institutional defined benefit pension assets.

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