AI100: fund managers’ Asia-Pacific AUM swells 25%

Asia’s leading fund managers grew their regional assets under management (AUM) by 25% last year, as regional institutional investors continued to outsource assets and more retail investors put money to work, according to AsianInvestor's latest AI100 survey.

The Asia-Pacific-located AUM of players from all geographies rose on average, but the rising tide favoured Asia-based fund managers the most. The combined AUM of Asia-headquartered firms rose by 31%. Japanese firms were only a short amount behind, with a 29.7% improvement.

Passively managed fund managers did well in the survey, with many climbing the rankings as more end-investors concluded that active managers were not worth the fees they charged, helping to spur a number of high-profile mergers between active managers. 

Overall, global firms in the AI100 saw their absolute percentage of AUM in Asia Pacific continue to decline, even as the overall pie grew. Still, even their combined AUM rose by 18.2% year-on-year, a good result given their Asia Pacific-sourced assets fell by 3.14% in the 2016 survey.

The largest managers of Asian assets remain global and Japanese firms. They accounted for nine of the top-10 firms by AUM and six of the top 20 firms by growth of assets.

A few dynamics lie behind the generally positive trends including the ongoing desire of families to invest in life insurance and, increasingly, pensions. Retail investors are also putting more money to work in mutual funds, particularly in China.

Passive appeal

A major theme permeating the global asset management market is the tussle between active and passive fund managers.

In recent years retail and institutional investors have begun to wonder whether the performance active funds deliver is worth the fees they charge. More end-investors are deciding they are not; all-told, investors globally shifted an estimated $500 billion in AUM from active managers to passive managers.

Key beneficiaries of the resulting shift of assets towards passively operated funds include Vanguard, BlackRock, and SSGA, the three largest managers of index funds and exchange-traded funds. This is reflected in this year’s survey.

BlackRock, the world’s largest overall fund manager with $4.5 trillion of AUM as of September 2016, saw its regional assets rise from an already weighty $391.9 billion in September 2015 to $440 billion as of September last year. State Street Global Advisors (SSGA), the third-largest passive manager with $2.2 trillion in total, expanded its regional assets by over 5% to hit $310 billion, putting it in sixth place overall.

Vanguard, the second-largest fund manager in the world and inventor of passive index funds, grew its regional assets by 24.77% to $136 billion. That put it in 18th place overall, but given its pace of expansion it’s likely to keep on rising up the rankings. It took in over $200 billion in net new assets across the world during 2016.

The pressure on active managers is less pronounced in Asia Pacific, which continues to add net capital into the global fund management industry, but globally fund management firms have been under pressure. Some have embarked upon mergers as they try to gain economies of scale, or broaden out product arrays in the hope of raising their appeal.

A key example is Baring Asset Management. The fund manager stands as the fastest-growing in the Asia-Pacific region, having seen its AUM increase by a whopping 355% from $18.1 billion in 2015 to $82.4 billion last year. Of course, such growth is impossible organically. Instead, it took place because of a merger of various companies at the behest of MassMutual, the US fund management company.

Consolidation pressures continue

The largest asset manager merger during 2016 was the $3.4 billion acquisition of American Capital by Ares Capital. However, neither company has a major Asia presence, and so doesn’t feature on our list.

Another major fund manager merger during 2016 was the $2.6 billion merger of Henderson Group with Janus Capital Group. Janus saw its assets leap by 30.77% to $35.7 billion by September 2016, putting it in 68th place on our list. More recently, struggling emerging markets-focused Aberdeen Asset Management announced a merger with Standard Life, enmeshing $809 billion of AUM.

Unless the pickup of the US economy greatly benefits active fund managers this year, they may not be the only fund houses that end up entering hasty marriages. The rapid improvement in US equity markets in particular will help all funds, while the positive result of France's presidential election, in which Emmanuel Macron beat nationalist Marine Le Pen to the presidency, offers scope for European equities to continue rallying too.

But these rises, when combined with increased geopolitical volatility and China's need to deal with its mounting credit bubble, could also raise the prospects of some sharp corrections in the months ahead.

That could give some active managers an opportunity to demonstrate their value versus index-tracking rivals. But it could also underline the lack of value offered by others, if they fail to materially outperform passive investors and exchange-traded funds.     

For more detailed breakdowns of the latest AI100 survey results by quartile, please look at these stories. And please look below for the list in full. 

*Estimate based on the industry average as company declined to break out its Asia-Pacific AUM to AsianInvestor