The world’s 500 largest asset managers have set a new record for assets under management. Alternative investments grew by almost 20 percent. In fact, alternative managers are overtaking traditional ones in the public markets, with Blackstone’s market cap surpassing BlackRock’s in late September, according to data from CL-Media. However, BlackRock is still the largest global company in terms of assets under management.
According to a new analysis by Willis Towers Watson’s Thinking Ahead Institute, the world’s 500 largest companies were managing $ 119.5 trillion at the end of 2020, 14.5 percent more than the previous year.
“Most of the influence comes from the markets,” said Roger Urwin, WTW’s global director of investment content Institutional investor. “2020 was a year where markets shut down for the first six months and then started up again for the last six months. And they finished with a clear head start. The impact of good market returns has had to wash the fortunes of all organizations. ”
Unsurprisingly, the asset class mix of managers is changing to meet the needs of their clients – wealth owners. According to the report, stocks made up 44.1 percent of manager-supervised assets, followed by fixed income securities at 35.6 percent. The combination of the two rose 16.4 percent between 2019 and 2020.
“That reflects the opportunities in the investment world,” said Urwin.
Managers reported that alternative investments grew the most. From 2019 to 2020, the alternatives increased by 19.8 percent. Alternative investments include private real estate, private equity, and real estate.
“Over the past decade, allocations to personal wealth have been several percentage points per year higher than allocations to stocks and fixed income. This means that the numbers for the entire alternative sector have stretched, ”said Urwin.
Urwin said the main reason for this push toward alternative allocation was the asset owners’ appetite to maintain the level of returns they have seen in the past. In the current environment of low interest rates, investors expect lower returns for listed markets in the future.
“Historically, low interest rates have been synonymous with expecting low returns on all assets,” said Urwin. “It is the alternative sector that is seen as the most profitable opportunity. Yes, you can take more risks with these assets, but asset owners who need to secure their solvency are keen to work with risk. ”
Alternative managers trump the traditional
Blackstone’s market cap was $ 140.5 billion, compared to BlackRock’s $ 128.4 billion as of the end of September, although it has far fewer assets under management. However, Blackstone’s larger market cap reflects the fact that investors pay more for alternatives than they do for equity and bond funds. According to CL-Media, eight of the ten largest listed independent asset managers in the world now specialize in alternatives.
“The data, particularly the top 10 rankings, reflects the strong demand for private market investments, the growing power of alternative managers, and the ability of these companies to generate higher fees than traditional managers who focus on publicly traded stocks and bonds,” said Richard Chimberg, partner and co-founder of CL-Media, said in an email.
Of the 500 largest companies analyzed by WTW, the top 20 asset managers in the world are getting stronger. According to the WTW report, the share of the top 20 managers in total global AUM rose to 44 percent at the end of 2020, one percentage point more than in 2019. 14 US companies in the top 20 manage 78.6 percent of total assets. The rest are based in Europe. Franklin Templeton and Natixis Investment Managers are new in the top 20. In 2020, Invesco and Wellington Asset Management dropped out of the top 20.
Of the top 20 managers, 11 are independent asset managers, seven are banks and two are insurers.
“These organizations are quite a few passive portfolios, and we know passive portfolios have grown over that time,” said Urwin. “There have been more allocations to passive strategies and systematic investment strategies. These organizations tend to have a large weighting for passives because passives work well with economies of scale. ”
The capital invested in environmental, social and corporate governance strategies has also increased. In 2018, wealth managers invested $ 0.8 billion in ESG mandates. In 2021, managers in ESG investing rose to $ 1.3 billion.
“The ESG has long been a very slow moving but unstoppable train,” said Urwin. “Over the past year the speed of this train has accelerated. We attribute this in our work to an increased sensitivity for the networking of sustainability in the experiences of the pandemic. ”
Going forward, Urwin said, the industry is poised for further asset growth. He and his team of analysts expect another record year for managers when 2021 comes to an end. But, he said, the record levels of returns won’t last forever. However, he does not expect investor appetite for potentially high-yielding alternative investments to slow.
Over the past two decades, wealth managers have faced challenges such as competition and consolidation that have led many to change their practices and re-mix the lists of winners and losers.
“Below the numbers, the names have changed,” said Urwin. “Half of the group has changed; half stayed the same. In the decade we’ve just been through, there has been more competition and more changes in the corporate structure, and this is generally about consolidation. ”