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Institutional Investment Managers Beat Retail Managers at Own Game

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Institutional investment managers are outperforming their retail-oriented counterparts when it comes to revenue from the retail market, according to a new analysis from Casey, Quirk & Associates and McLagan.

The study found that institutionally oriented managers are boosting revenue at a faster rate in the retail market than retail-focused managers. Institutional managers increased revenue by 25% in 2013 from the retail channel vs. an 11% gain for retail-focused managers, according to the analysis, Performance Intelligence: 2014 Survey Results.

In 2012, institutional managers showed a small gain from retail markets ahead of retail managers that wasn’t seen in years prior. According to the survey, in 2012, revenue from the retail channel rose 10% for institutional managers and 7% for their retail counterparts, but in both 2011 and 2010 retail managers generated more revenue growth for the retail market than institutional managers.

Jeffrey Levi, partner at Casey Quirk, attributes this recent boost to a shift in focus to nontraditional investment strategies.

“The retail channel is driving growth in the global investment management industry,’’ said Levi, in a news release. “Recent revenue gains by institutional managers in the retail market offer compelling evidence that strategies favored by institutions — including nontraditional fixed income, emerging markets debt and equity, alternatives, and multi-asset class solutions — increasingly are making their way into the portfolios of retail investors.”

For example, Levi added, that in order to offer institutional strategies to their clients that they didn’t previously offer, retail fund sponsors are having to hire institutional subadvisors to manage the portfolios and pursue acquisitions to gain skills they lack.

This year’s benchmarking analysis surveyed 90 money managers worldwide who invest an aggregate $25 trillion for institutions and individuals. They included privately held, publicly traded and wholly or partly owned firms with assets under management ranging from below $50 billion to over $1 trillion in assets.

The survey also found that the global investment management industry overall reached new highs for revenue and professionally managed assets under management, earning $302 billion and managing $58 trillion in 2013, according to the analysis. AUM growth was 13.4%, which the analysis attributed to strong capital markets and 7-year high net inflows of 3.2%.

However — as Adam Barnett, head of the asset management practice at McLagan, discusses — the growth projections through 2018 in the benchmarking analysis are forecast to be more modest: 1.6% for net inflows and 5.6% for capital appreciation, annualized.

“Slower growth ahead and the shift to more unconstrained and multi-asset class strategies among institutional and individual investors will test investment firms as they seek to identify and retain the technical talent needed to succeed in this new environment,’’ said Barnett, in a news release.

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