The animal spirits are stirring again in the markets as the asset management industry grows to a record level and shrugs off some of the debilitating effects of the financial crisis. ... The amount of money invested globally by asset managers has for the first time surpassed the highs before the 2007-08 crisis, according to Boston Consulting Group, the management consultants. ... Gary Shub, partner at BCG, agreed that animal spirits, a term used by economist John Maynard Keynes to describe positive actions because of instinctive optimism, had recovered in the markets, although he warned it was not a fully fledged revival.
The index fund pioneer’s low fees have driven down costs but is its success a cyclical phenomenon? ... It passed the $3tn mark in assets under management globally last year, as international growth spurted alongside the US; today the total is $3.4tn. ... if there are vulnerabilities, they are in three areas: the shift to passive investing may prove to be partly a cyclical phenomenon; Vanguard’s move into giving financial advice could cause friction; and regulators could decide to step in to stop the firm becoming too big to fail. ... Instead of having outside shareholders, Vanguard is owned by its funds, which means that instead of having to charge fees high enough to generate a profit for shareholders, it operates “at cost” and charges only enough to cover expenses and business investment. ... The Financial Stability Board, based in Basel, Switzerland, has suggested designating every fund with over $100bn in assets as a “systemically important” organisation and subjecting them to tougher oversight and perhaps other requirements, all of which would raise costs.
The asset management industry is about to experience another shake-up, as the investment universe expands to include new asset classes that involve direct loans to the economy rather than financial securities. … This report provides an insight into a new world of unlisted assets. Just as there is a market for private equity (unlisted shares), a market for private bonds and loans is developing as a result of the current large-scale disintermediation process. The report is intended to be instructive and seeks to explain this market using simple language. The editorial covers issues arising from macroeconomic disintermediation in the US and Europe, but also takes a microeconomic view by looking at the asset management industry in Europe, the US and Japan.
In this report, we look at five markets through which investors can lend directly to the economy, each corresponding to a new asset class:
1) Loans guaranteed by export finance agencies
2) Commercial real-estate loans
3) Loans for financing energy-related projects
4) Loans for financing transport-related projects
5) Loans to SMEs and intermediate-sized enterprises (ETIs)
The need for good money managers has never been greater. Total investable assets are continuously rising. High-net-worth individuals are now influential sources of capital in both established and emerging markets. Baby boomers are living longer in retirement, and as they stop working they'll need their assets to last longer. Yet for investors too few good options exist. ... Many of our colleagues don't believe that disruption is imminent. After all, asset management is one of the world's most profitable and exciting businesses. Why should we even worry about disrupters? The challenge, according to innovation expert Clayton Christensen, is that incumbents have a blind spot toward disruption. It is difficult to see because it goes against a set of ingrained assumptions that most likely have led to success so far. As a result, the profitable big players have a hard time seeing threats, especially when these are coming from smaller and more innovative players or outside their traditional set of competitors. ... We expect that asset management is about to go through a particularly dynamic period of disruption, for three reasons: high profits, new technologies and a new set of client demands resulting from global social changes. ... Roughly half of the world's $270 trillion-plus of investable assets are in real estate and cash, which were also the most popular investment areas in the 1800s. ... Our research suggests the power base will eventually shift from the money managers to the money holders.
In this interview, Fink relives the decisive moments that shaped his company, sets a limit on his tenure as CEO, explains the reasoning—and risks—in his succession strategy, and shares his plans for a life after BlackRock. ... When you talk about revolutions, it’s always with the benefit of hindsight. When you’re in the moment, you’re working toward an objective. Even back in the infancy of the mortgage business and asset-based finance, it was very clear we were changing finance, but I don’t think we were very clear on where this was going to go and how far this was going to get. When we bought BGI [Barclays Global Investors], iShares had $385 billion in assets; today iShares has $1.3 trillion. If you’d asked me if I had expected that when I acquired BGI in 2009, I would have said no. But if you’d asked if I’d known ETFs would change the investment management business, yes.