Fifty-two percent of institutional investors managing at least $500 million in assets say they are likely to let go at least one of their asset managers within the next year, according to a Cogent Reports study by Market Strategies International, released Thursday.
One of the main reasons, these managers say, is a desire to switch to a passive manager from an active one.
Cogent’s annual US Institutional Investor Brandscape study found that Vanguard stood to benefit most from the shift to passive management. It was the manager both pension funds and nonprofit organizations said they were likeliest to consider for future mandates.
Vanguard was the top choice over 50 other managers last year as well as in 2016 and 2015. The following firms round out the top five managers likeliest to be considered for future mandates by pensions and nonprofits:
- BlackRock — No. 2 in 2016; No. 3 in 2015
- Pimco — No. 5 in 2016; No. 11 in 2015
- American Funds — No. 15 in 2016; No. 18 in 2015
- T. Rowe Price — No. 9 in 2016; No. 2 in 2015
- BlackRock — No. 2 in both 2016 and 2015
- PIMCO — No. 7 in 2016; No. 6 in 2015
- Dodge & Cox — No. 9 in 2016; No. 7 in 2015
- American Funds — No. 12 in 2016; No. 10 in 2015
“Some of these firms have made impressive moves into the top five,” Christopher Barnes, managing director of financial services at Market Strategies, said in a statement. “Pimco and American Funds, for example, clearly demonstrate that strategic moves and the strong expression of value to the marketplace can improve consideration.
“We know where there are holes in the market and how, with the right formula, firms can take advantage of them to make powerful moves up in the rankings.”
Linda York, the report’s author and senior vice president at Market Strategies, said robust, consistent investment performance was a “must-have” to attract new institutional assets.
Last year, most active stock and bond fund managers underperformed their indexes.
However, performance is not the only factor influencing a manager’s hiring or firing, York said. “While active managers need to acknowledge the threat that passive management poses, they have the opportunity to draw attention by demonstrating a unique investment philosophy backed by an experienced investment team.
“Many of the firms nipping at Vanguard’s heels are doing just that.”
On Thursday, AllianceBernstein rolled out a group of actively managed funds that charge only index-like fees if they perform in line with or below their benchmarks and higher fees only if they beat their benchmarks by a considerable amount.
Cogent Reports conducted an online poll for the U.S. Institutional Investor Brandscape study from Oct. 13 to Nov. 28 of 371 investors managing $100 million or more of institutional investable assets (up from $20 million in earlier studies). Survey participants were required to play a direct role in the evaluation and selection of investments or asset managers within their organization.
— Check out Liz Ann Sonders: The Big Mistake Investors Should Avoid This Year on ThinkAdvisor.