Asset management, over the past few decades, has seen extraordinary growth – but also increasing competition and concentration, as active managers grapple with the rise of passively managed exchange-traded funds and new ideas about the shareholder capitalism.
But opinions on which proprietary asset manager’s ownership structure is best positioned to meet these challenges vary widely. Managers are still sharply divided on the benefits of staying private, to shield investors from quarterly targets, versus the business growth they can achieve by listing shares as a public company.
“Ownership has never been more important. . . that has a long-term view and an ability to offer support throughout the market cycle,” says David Hunt, managing director of PGIM, a top 10 asset manager.
Three American companies – BlackRock, Vanguard and State Street – have grown to dominate not only a fifth of the industry’s $100 billion in assets under management worldwide, but also 80% of the passive fund market in the United States, according to a Common Wealth study.
This has created enormous pressure on other firms to differentiate themselves and deal with pressure on their margins as they are forced to cut fees to compete with rival passively managed funds.
For PGIM’s Hunt, being part of the insurance parent company Prudential is key to aligning the business with longer-term thinking. “Stable long-term insurance assets are wonderful supports for long-term investment managers,” he says. “We retained our culture of an investment house and not an asset collector due to the alignment of interests with our owner.”
However, not everyone has the same point of view. Many experts argue that insurer-owned managers need to separate themselves from their parent company and their focus on managing the insurer’s assets, in order to thrive in a highly competitive market.
While many asset managers are publicly traded – from giants like BlackRock and Amundi to smaller specialty shops – some believe that staying private can shield fund managers from short-term shareholder demands and the vagaries of market cycles.
“Investment management begins with extraordinarily long fiduciary commitments,” says Hamish Forsyth, president of Europe and Asia at U.S.-based Capital Group, which manages more than $2.6 billion in investments. assets. “When you start a mutual fund, you should expect to manage that mutual fund in 10, 50 or 100 years. There’s also the reality that ours is an industry where you have very little control over your short-term earnings.
The company, which was founded in Los Angeles in 1931, responded to these opposing challenges by developing an employee ownership model that allowed the organization to remain private while favoring a conservative, long-term investment style. term.
The company is owned by around 400 of the company’s most senior employees, while a team of fund managers look after the portfolios instead of a single individual.
“I think the employee ownership model is a really good way to incorporate that rather conservative long-term thinking into your decision-making. If you have a third-party owner, does he really feel the same way during the good times, or does he just say, ‘Well, where’s my dividend?’ says Forsyth.
Some smaller companies have also found it beneficial to stay private. Active equity specialist Redwheel, which manages $22.6 billion, believes that staying private while retaining a multi-boutique structure allows the company more flexibility to ride out downturns.
“The fact that we are a private company majority controlled by the people in the company means that we can be patient [and] we can make long-term decisions in a market,” says Managing Director Tord Stallvik.
He doesn’t think that’s necessarily the case among some peers, where pressured management teams have started having conversations about spending starting to cut as revenues fall in tougher markets. “For smaller companies that are niche investors, I have a hard time seeing how [being public] doesn’t somehow influence the way you run the business in a way that’s contrary to the long term,” Stallvik says.
For others, however, being public companies has been essential to growth.
Australia-based Pinnacle Investment Management, which manages $93.6 billion, across a range of investment styles and philosophies, decided to join six years ago. Its original owners and managers had been wary of the influence of public procurement, but decided there was more to be gained.
“Registration was a significant decision,” says Founder and Managing Director Ian Macoun. “We wanted to stay private to avoid short-term pressure from shareholders. But we convinced ourselves that the benefit of access to capital outweighed these concerns – and, if [shareholders] put that kind of short-term pressure on us, we tell them to get stuffed.
“Staying private can limit you; we wanted to grow,” he says.