Document

Report
The Ever Evolving Asset Management Industry
An Industry Review at 2013 and Beyond
Mark R. Anderson, CFA
National Investment Services, Inc.
TITANIUM ASSET MANAGEMENT
Agenda
1. Introduction
2. Historical Look at Consolidation Trend Among Asset Managers
3. Current Industry Statistics
4. Trends in Asset Allocations & Expected Capital Flows
5. Questions
The Titanium Family of Companies:
Boyd Watterson Asset Management
National Investment Services
Titanium Real Estate Advisors
Wood Asset Management
Cleveland, OH / Charlotte, NC
Chicago, IL / Milwaukee, WI
Chicago, IL
Sarasota, FL
2
TITANIUM ASSET MANAGEMENT
Mark R. Anderson, Vice President, CFA
 Mark is the co-manager of the NIS Preferred Stock Fund.
 He also manages municipal bonds in our fixed income portfolios.
 Specializes in equity futures and ETF trading.
 Writes our Economic and Fixed Income market updates.






The Titanium Family of Companies:
National Investment Services, Inc., 2000Associated Trust Company, 1995-2000
Associated Bank, 1993-1995
University of Wisconsin, Stevens Point, BS, 1991
13 years with the firm
20 years of investment experience
Boyd Watterson Asset Management
National Investment Services
Titanium Real Estate Advisors
Wood Asset Management
Cleveland, OH / Charlotte, NC
Chicago, IL / Milwaukee, WI
Chicago, IL
Sarasota, FL
3
TITANIUM ASSET MANAGEMENT
Who We Are
 Titanium Asset Management is a collection of four asset management
firms, each primarily focused on a particular asset class
Diverse Client Type
Taft Hartley: 34%
Pension and other Welfare
Plans: 13%
 Offers Fixed Income, Equity and Alternative Investments
Government: 12%
 Offers Real Estate: QPAM Advisory Services
Corporate: 11%
 Over $8.7 billion in assets under management
 Clients include: Institutional, High Net Worth, and SMA
Charitable: 8%
Other Institutional: 9%
Assets by Strategy
US Fixed Income
Retail: 13%
88%
US Equity
8%
Alternative
3%
Real Estate
1%
Our Team
 Titanium is comprised of 72 employees
 30 investment professionals with an average of 21 years
in the industry
 9 veterans dedicated to our client and consultant relationships
 14 CFA charter-holders
Our Philosophy
 Titanium offers our clients disciplined institutional investment
strategies with a high level of personalized service
 We frequently design customized investment solutions
Data as of 9/30/12
The Titanium Family of Companies:
Boyd Watterson Asset Management
National Investment Services
Titanium Real Estate Advisors
Wood Asset Management
4
Cleveland, OH / Charlotte, NC
Chicago, IL / Milwaukee, WI
Chicago, IL
Sarasota, FL
4
TITANIUM ASSET MANAGEMENT
Two Decades of Consolidation
Over almost 20 years, the 37 financial companies listed below have been folded into four extremely large and complex concerns with global reach and a onestop-shopping approach to the financial services.
1990-1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Traveler's Group
Citicorp
Citigroup
European American Bank
Citigroup
Banamex
Washington Mutual
Great Washington Financial
Washington Mutual
H.F. Ahmanson
Washington Mutual
Dime Bancorp
First Chicago
Bank One
Banc One
JPMorgan Chase
First Commerce
JP Morgan
Chase Manhattan
Chemical Banking
JPMorgan Chase
Chase Manhattan
Bear Stearns
US Trust
MBNA
Continental Bank
BankAmerica
Bank of America
Security Pacific Bancorp
NationsBank
Bank of America
Fleet Financial Bank
BancBoston Holdings
Bay Banks
Summit Bancorp
UJB Financial
BankBoston
FleetBoston Financial
Summit Bancorp
Countrywide Financial
Merrill Lynch
Wells Fargo
First Interstate Bancorp
Wells Fargo
Wells Fargo
Norwest Holding Company
Wells Fargo
SouthTrust
Wachovia
Wachovia
Central Fidelity National Bank
Wachovia
CoreStates Financial
First Union
The Money Store
First Union
5
TITANIUM ASSET MANAGEMENT
Asset Managers Tend To Work Best During More Robust Economic Stages…
Asset Manager P/E vs. Fed Funds
7.0
BLK Announces BGI
Acquisition June 2009
Merrill Acquires Mercury
Dec 1997
Lehman Acquires Neuberger
July 2003
BLK Acquires MLIM
Oct 2006
6.0
5.0
Franklin Acquires Templeton
Oct 1992
24x
21x
+1 Standard
Deviation
17x
18x
4.0
Fed Funds Average = 3.7%
3.0
15x
FTM P/E Ratio
Fed Funds (%)
Median Forward P/E = 16.2x
2.0
-1 Standard Deviation
12x
1.0
0.0
Dec-91
9x
Dec-93
Dec-95
Dec-97
Dec-99
Fed Funds
Dec-01
Dec-03
Dec-05
Dec-07
Dec-09
Citi Asset Manager Universe
6
Source: FactSet, Bloomberg, Haver, Company Reports and Citi Research
TITANIUM ASSET MANAGEMENT
Returns of Publicly Traded Asset Managers Highly Correlated to Stocks
Source: Bloomberg
7
TITANIUM ASSET MANAGEMENT
A Large Industry in Slow Growth Mode
Source: Lipper, AllianceBernstein, Citi Research
8
TITANIUM ASSET MANAGEMENT
U.S. Household Ownership of Mutual Funds
U.S. Retail is Saturated…at Least When it Comes to Mutual
Funds
60%
48%
50%
45%
41%
44% 42% 43% 43% 44%44% 45% 43%
45% 44%
40%
33%
30%
20%
22%
25%
27% 28%
20%
11% 12%
10%
6%
0%
80 82 84 86 88 90 92 94 96 98 00 01 02 03 04 05 06 07 08 09 10 11
Note: share defined as % of trailing 12-month industry U.S. retail flows from
largest managers ranked by AUM; LT MF excludes ETFs; Data through
July 2012
Source: ICI, Strategic Insight Simfund, Company Reports, Citi Research
9
TITANIUM ASSET MANAGEMENT
ETF’s are Gaining Popularity and Margins are Pressured
14%
11.6%11.8%
11.0%
10.0%
% U.S. Retail AUM
12%
10%
9.2%
8%
7.0%
5.5%
6%
4.6%
3.9%
4%
2.6%
2% 1.4%
3.0%
1.9%
0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
YTD
ETFs
Source: ICI, Citi Research
10
TITANIUM ASSET MANAGEMENT
Active Managers Recent Performance Has Been Like Flipping A Coin;
No Wonder Passive Is Taking Share
Global Active Managers Outperforming Benchmarks
60%
U.S. Active Managers Outperforming Benchmarks
60%
52%
50%
50%
49%
39%
40%
40%
30%
30%
20%
20%
10%
10%
0%
16%
0%
2000-2011 Average
2011
2000-2011 Average
Source: Lipper, AllianceBernstein, Citi Research
2011
11
TITANIUM ASSET MANAGEMENT
ETF’s are Growing Faster than Mutual Funds During the Early Years
Indexed Growth During Early Years
300,000
200,000
100,000
0
0
4
8
12
MFs
16
ETFs
Note: Cumulative flows for: 1) MFs = 1980-1999; and, 2) ETFs = 1993-2012TD
Data through September 2012
Source: Strategic Insight Simfund, Citi Research
12
TITANIUM ASSET MANAGEMENT
Equity sector correlations are high
Industrials
0.93
Energy
0.93
Financials
0.92
Technology
0.91
Emerging Markets
0.89
Healthcare
0.88
Materials
0.86
Utilities
0.34
0
0.2
0.4
0.6
0.8
1
Note: 30 Day correlation as of Dec. 7, 2012
Source: ConvergEx Group, Bianco Reasearch, L.L.C.
13
TITANIUM ASSET MANAGEMENT
While the U.S. Centric Market is Set to Expand Globally…
80%
70.3%
70%
Global AUM ($B)
1,200
60%
1,000
50%
800
40%
600
% AUM
1,400
30%
18.9%
400
20%
200
3.7%
2.9%
2.3%
1.2%
0.7%
0
10%
0%
US
Europe
Asia (Ex
Japan)
Canada
Japan ME & Africa LatAm
ETPs
Source: Strategic Insight, Citi Research
14
TITANIUM ASSET MANAGEMENT
15
TITANIUM ASSET MANAGEMENT
In the U.S., Institutional Funds are Changing in Different Ways
•
Corporate funds are faced with huge funding gaps.
– De-risking DB plans
– Risk management is front and center
– Shifting to DC
•
Public funds are also faced with huge funding gaps and searching for ways to reach
unachievable goals.
– Political pressures growing
– Focus on returns to close funding gaps
– Staying with DB plans – for now
•
The endowment model has been reaffirmed.
– Closer link to sponsoring institution
– Renewed appreciation for liquidity
– Alternatives continue to dominate
Channel management has become more important
16
TITANIUM ASSET MANAGEMENT
Pension Plan Funding Gaps are Wide…
110
Plan Funding Ratio
100
90
80
70
60
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Note: Funding ratio¹ = ratio of asset values to liabilities, representative of a typical pension plan.
¹ The asset and liability returns are for a hypothetical Moderate Risk portfolio compared to the return of
BNY Mellon's "Typical" Pension Liability Index, using Reported Value discounting.
17
TITANIUM ASSET MANAGEMENT
…Rates Have Collapsed (10 Year U.S. Treasury)
18
TITANIUM ASSET MANAGEMENT
Extended Duration of Investors’ Discontent
 Fear and disillusionment as risk failed to generate returns in 2000’s
 End of “wind at your back” 30 year secular return environment for bonds
 Competing factors – need for more income but stronger risk aversion
 Greater demand for outcome-oriented strategies rather than relative return
19
TITANIUM ASSET MANAGEMENT
Large U.S. Public Funds Are Adding Alternatives
Fixed
Equities Income
Policy Targets
California Public
Employees' Retirement
System
Colorado Public
Employees' Retirement
Association
New Jersey Investment
Council
Ohio Public Employees
Retirement System
State of Wisconsin
Investment Board
New York State
Teachers' Retirement
System
Employees Retirement
System of Texas
Oregon Public
Employees Retirement
System
Ohio State Teachers'
Retirement System
Median Change
Real Return /
Opportunity
Hedge Fund /
Private Equity
Cash
Date
Prior
60%
26%
8%
6%
0%
2009
Current
56%
19%
15%
10%
0%
2010
Change
-4%
-7%
7%
4%
0%
Prior
58%
25%
10%
7%
0%
2009
Current
56%
25%
12%
7%
0%
2010
Change
-2%
0%
2%
0%
0%
Prior
39%
34%
9%
15%
3%
2010
Current
39%
34%
9%
15%
3%
2011
Change
0%
0%
0%
0%
0%
Prior
63%
24%
8%
4%
N/A
12/31/08
Current
50%
25%
12%
13%
N/A
12/31/10
Change
-13%
1%
4%
9%
N/A
Prior
58%
31%
6%
5%
N/A
6/30/08
6/8/11
Current
53%
26%
13%
12%
-4%
Change
-5%
-5%
7%
7%
N/A
Prior
61%
26%
8%
5%
N/A
6/30/08
Current
57%
26%
10%
7%
N/A
6/30/10
Change
-4%
0%
2%
2%
N/A
Prior
62%
38%
0%
0%
0%
2007
2/22/11
Current
45%
33%
0%
21%
1%
Change
-17%
-5%
0%
21%
1%
Prior
55%
27%
8%
10%
0%
6/30/07
Current
46%
27%
11%
16%
0%
6/30/10
Change
Prior
Current
Change
-9%
61%
57%
-4%
-4%
0%
18%
18%
0%
0%
3%
15%
17%
2%
2%
6%
5%
7%
2%
4%
0%
1%
1%
0%
0%
2/21/12
20
Source: Towers Watson, various pension fund CAFRs, various company conference calls, Citi Research
TITANIUM ASSET MANAGEMENT
Strong (Private Equity) Returns Attract Attention
18%
16.6%16.4%
16%
14%
12.9%
11.9%
Net Return
12%
10%
8%
6.2%
6%
6.0%
5.5%
5.3%
4.8%
4%
2%
0.2%
0%
1-Year
3-Year
5-Year
U.S. Private Equity Index¹
Data through 6/30/12
Note: Net return = pooled end-to-end return, net of fees,
expenses, and carried interest.
10-Year
15-Year
S&P 500
21
Source: Strategic Insight, Cambridge Associates, Citi Research
TITANIUM ASSET MANAGEMENT
Investors Like Predictability
Monthly Frequency (# of Observations)
Distribution of Monthly Returns Since 1994
90
S&P 500
80
70
60
OZ Master Fund Ltd
OZ Master Fund: 81%
of Monthly Returns Fall
Between 0% and +4%
50
40
30
20
S&P 500: 42% of
Monthly Returns Fall
Between 0% and +4%
10
0
<-3
-2 to -3 -1 to -2
0 to -1
0 to 1
1 to 2
2 to 3
3 to 4
4 to 5
>5
Percent
Data through 11/30/12
Source: Company reports
Source: Strategic Insight, Cambridge Associates, Och-Ziff, Citi Research
22
TITANIUM ASSET MANAGEMENT
And so is the Rest of the World
Global Pension Assets
(YE11) = $27.5 trillion
Aggregate Asset Allocation
60%
50%
40%
30%
20%
10%
0%
2006
2007
Equities
Note: Global Pension Assets account for Australia, Brazil, Canada, France, Germany,
Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, UK, US.
2008
2009
Bonds
Other
2010
2011
Cash
Source: ICI, Citi Research
23
TITANIUM ASSET MANAGEMENT
Traditional and “Alternative” Managers Are Converging
Traditional
Equity/Fixed
Alternative
Traditional
Equity/Fixed
Alternative
Rationale:
 Investors and consultants re-examining the necessity of constraints on
managers
 Some success by eliminating constraints where there is little economic
rationale such as liquidity issues, style box adherence, no shorting and
leverage allowed
 Following hedge fund “invest wherever and in any way” approaches,
traditional managers are transitioning into absolute return-oriented
approaches
24
TITANIUM ASSET MANAGEMENT
Multi-capability firms are more competitive…
Average Firm Allocations
Executive search by Firm Type
2010 (%)
2009-2011 (%)
90%
100%
8%
90%
16%
80%
13%
8%
80%
3%
70%
20%
60%
6%
70%
60%
50%
50%
39%
40%
40%
30%
30%
57%
20%
20%
32%
10%
10%
0%
0%
More Competitive
Equity
FI
Less Competitive
Alternatives
Cash
Other
2009
2010
Multi-Product Firms
2011
Pure Play Firms
Source: eVestment Alliance, Pensions & Investments, Casey Quirk Analysis
Source: David Barrett Partners analysis
Note: 177 firm sample size ($19T in AUM). Results are the average for a sub-set ($6.6 T in AUM) comprising “more competitive” top, and “less competitive” bottom
quintiles in terms of 3 year revenue growth (2007-2010)
25
TITANIUM ASSET MANAGEMENT
Almost all incremental US institutional revenues will come from alts…
Projected US Institutional Flows & Revenues
2011-2015 Cumulative
Revenues:
Flows:
Global/Int'l Equity
Direct HF
Emerging Markets Equity
International/Global FI
Long-Duration FI
Private Equity
Private Real Estate
Cash / Other
Emerging Markets Debt
FoHF
High Yield FI
Public Real Estate
Distressed
Other Alternatives
Leverage Loans
Government Credit
Mortgage
Core/Core Plus FI
Short Duration
US Equity
350 300 250 200 150 100 50
0
50 100 150 200
$ billions
Sources: Casey Quirk Analysis
3
2
1
0
1
2
3
4
5
$ billions
26
TITANIUM ASSET MANAGEMENT
Questions?
Thank You!
27
TITANIUM ASSET MANAGEMENT
Appendix
 Key Attributes of Investment Firms
 Projected Asset Flows by Client Type
28
TITANIUM ASSET MANAGEMENT
Investment Firms Can Be Thought of as Advisors or Boutiques
Key Attributes of Advisory and Boutique Investment Firms
Advisor
Boutique

Many products, multiple-asset classes.

Narrow product range.

Multiple distribution channels and geographies.


Investment excellence defined by value proposition
based on superior investment returns.
Investment excellence defined by value proposition
which includes advice on liabilities, cash flow and
fundamental investment objectives, risk tolerance and
controls, and strategic decision-making.


When investment returns are strong, explosive
growth occurs, generating rich economies of scale
but often straining the organization at the same
time.
Products achieving strong out-performance at a
moment in time provide significant positive asset flows
and allow “boutique sales to a broad range of clients,
with a transcending value proposition and investment
excellence philosophy.”

Periodic significant periods of weak investment
returns.

Sticky relationships include multiple mandates to limit
client loss during periods of underperformance.
During periods of underperformance, high risk of
losing assets and clients due to single product
focus.

Clients include largest and most sophisticated global
institutional investors.
Vulnerability to key man risk and challenging
successions/generation shifts.

Client service excellence consists of clarity in
communicating the firm’s investment strategies,
ensuring clients understand risks, and will tolerate
inevitable periods of weak returns.

Advisory services are not offered, and limited use is
made of product specialists.



Sales and relationship management requires
sophisticated consultative investment professionals
skilled at identifying client needs.

Advisory services are an explicit business offering,
utilizing a fully developed range of sales executives,
relationship managers, product specialists and advisers
to service clients.
29
TITANIUM ASSET MANAGEMENT

U.S. equity and domestic core/core plus
may continue to face shrinking flows

Continued low interest environment forcing
clients to consider higher yielding/higher
risk (emerging, non-dollar, MLPs, high yield)

Consultants expect more of these searches
to involve manager replacement rather
than new/increasing allocations
30
TITANIUM ASSET MANAGEMENT
Domestic Growth Is Expected to Vary Sharply Across Client Segments and
Asset Classes
Market data
not available
Annual net new flows as % of AUM:
Passive
Fixed
Income
Corporate DB
Equity
Inv. Grade High Yield Global
0%-1.9%
Products
Active Equities
Emerging
Domestic Int'l Devt. Market
>=2%
Real
Estate
Private
Equity
Alternatives
Hedge
Fund
Other¹
MultiAsset²
TOTAL
$50
$175
$725
$20
$40
$370
$250
$50
$90
$160
$100
$50
$100
$2,180
$120
$650
$560
$50
$45
$300
$320
$65
$150
$200
$90
$40
$130
$2,720
Taft-Hartley
$10
$50
$120
$5
$20
$40
$50
$2
$30
$20
$30
$50
$10
$437
IO-DC
$50
$525
$630
$35
$10
$270
$80
$10
$5
NA
NA
NA
$80
$1,695
Endowments
and
Foundations
$10
$75
$120
$15
$45
$40
$40
$15
$150
$150
$275
$105
NA
$1,040
Insurance GA
$20
$70
$800
$10
$15
$35
$35
$15
$120
$15
$10
$15
$25
$1,185
$260
$1,545
$2,955
$135
$175
$1,055
$775
$157
$545
$545
$505
$260
$345
$9,257
Public DB
Clients
Active FI
<0%
TOTAL
¹ Includes: commodities, infrastructure, energy investments, timber, farmland and FX Allocations.
² Refers to Outcome oriented funds for IO-DC and Global Tactical Asset Allocation Funds and other segments
Source: McKinsey North America Institutional Asset Management Head Hap
31
TITANIUM ASSET MANAGEMENT
Shifting Sands
Source: Lipper, AllianceBernstein, Citi Research
32

similar documents