RBC Capital Markets analysts Eric. N Berg, Kenneth S. Lee and Bulent Ozcan present their take on the changing dynamics in the asset management space.
The analysts identify key industry trends, and what the changes could mean for asset management companies rated by RBC, based on the views expressed by a panel of industry asset management leaders speaking at the RBC Capital Markets’ Financial Institutions Conference.
The following is our rough coverage of the 2021 Sohn Investment Conference, which is being held virtually and features Brad Gerstner, Bill Gurley, Octahedron's Ram Parameswaran, Glenernie's Andrew Nunneley, and Lux's Josh Wolfe. Q1 2021 hedge fund letters, conferences and more Keep checking back as we will be updating this post as the conference goes Read More
Index-based investing was first brushed off by the actively managed funds industry as just another new kid on the block. Later, after index-based funds began enjoying strong flows, they were noticed, but yet not acknowledged as a threat. But now, for the first time, analysts discern that the active manager industry has begun to view passive investing as a real and substantial challenge to their business.
In fact, the industry now appears to agree that index funds and ETFs could really ‘move the cheeses’ for many active managers who stick to their comfort zones and refuse to acknowledge that these products could become mainstream products.
The alternative, said panelists, is to specialize, or to become “multi-boutique” businesses.
Yet low-fee passive management is not the only business model
Encouragingly, the panel did not think that low fees were the panacea. The analysts noted that participants were confident that high-fee products could exist alongside the plain vanilla offerings. Examples cited were of a WisdomTree Trust (NYSEARCA:ELD) product that charged an 80bps fee, and Virtusa Corporation (NASDAQ:VRTU), which offered the services of highly specialized managers and pricing reflecting that fact.
Alternative goes retail
An emerging trend is that of the hitherto exclusive alternative strategies arena being thrown open for participation to the retail investor. An example of such ‘democratization’ is The Blackstone Group L.P. (NYSE:BX)’s joint venture with Fidelity to create a mutual fund able to invest in hedge funds—Blackstone Alternative Multi-Manager Fund Class I (MUTF:BXMMX).
No longer will ‘alternative’ remain the playground only for the institutions or the very rich.
Asset management abilities
RBC is clearly impressed with the abilities of selected asset managers to weather these winds of change in the industry. BlackRock, Inc. (NYSE:BLK) is cited for its active, problem-solving approach, whereas alternative manager The Blackstone Group L.P. (NYSE:BX) gets praise for its ability to bring troubled companies back into shape.
RBC reiterates Outperform ratings for these asset management companies:
BlackRock, Inc. (NYSE:BLK)
Eaton Vance Corp (NYSE:EV)
Fortress Investment Group LLC (NYSE:FIG)
Invesco Ltd. (NYSE:IVZ)
Och-Ziff Capital Management Group LLC (NYSE:OZM)
The Blackstone Group L.P. (NYSE:BX)