A report card on the 500 largest asset managers shows that ESG is the growth story, but with plenty of caveats.

Assets managed in environmental, social, and governance mandates by the 500 largest asset managers globally were up by nearly a quarter (23.3 per cent) in 2018, while overall AuM was down by 3 per cent for the year. The US and Europe saw total AuM decline, while the rest of the world saw double-digit growth. These are some of the figures drawn from the Global 500 report published annually by Willis Towers Watson's The Thinking Ahead Institute. The report reminded those asset managers wanting to stand out that sustainability and a firm's investment culture are very much on investors' minds as values increasingly challenge pure profits as motives.

The research also provides a useful bellweather for where assets are moving between regions and asset classes, which asset houses are moving in or out of the Top 20 largest by AuM, and where investors are shifting priorities. Looking at data for the last 10 years, the authors cautioned that the investment industry is changing, with almost half (242) of the asset firms appearing on the list in 2008 being no longer there in 2018.

To the takeaways:
BlackRock ranked top as the largest asset manager, a position it has held since 2009; for the fifth year running Vanguard and State Street rounded out the top three. In all, 13 US managers filled the Top 20, accounting for 72.6 per cent of the total AuM. The remaining Top-20 spots were held by European managers, from France (3), Germany (2), and one each for Switzerland and the UK. Among US firms, T Rowe Price entered the Top 20 in 2018.

The World’s largest money managers ranked by total assets under management (US millions) as of 31 December 2018

Sumitomo Mitsui Trust Holdings, Nippon Life Insurance, Mitsubishi UFJ Financial Group and Asset Management One were the only Asian asset managers ranked in the Top 50.

Assets under management
The top 20 managers’ share of total assets was down marginally for the year from 43-42 per cent, translating to a 4.8 per cent drop in total AuM to $38.6 trillion. With the caveat that all major equity indices logged negative returns in 2018, passive investments also fell by 3.4 per cent for the year.

By region, North America AuM was down by 4.9 per cent, Europe by 3.9 per cent, while the rest of the world group grew by 17.9 per cent.

Despite the 3 per cent global decline in total AuM, Asia Pacific markets saw overall growth of more than 19 per cent in 2018. India has led the way in Asia with 22.7 per cent AuM growth followed by China at 21.6 per cent over the past five years.

“The data in this year’s report clearly show how Asia’s percentage of global AuM continues to increase compared to other regions. However, to maintain this growth in an ever changing investment environment, Asian asset managers will need to start embracing ESG investing,” Jayne Bok, head of investments for Asia at Willis Towers Watson, said.

Enthusiasm for sustainable investing is tempered by the fact that there are 50 shades of ESG out there, and products on the impact end of the spectrum are a long way from basically screened offerings which some of the large fund houses are labelling as ESG. The industry has a way to go before the measuring and signposting of sustainable investing fits a more standardised framework helpful to investors.

Asset allocation
Traditional equity and fixed income asset classes continued to make up the majority of all assets (78 per cent), with 43.6 per cent held in equity and 34.4 per cent in fixed income. As a whole, the asset classes were down by 5.6 per cent in 2018.

While the report noted that the last 10 years have been a fairly benign environment for asset managers, it said that most observers expected greater disruption in the coming years, with added pressure from fee compression, high technology costs, and more regulation.

Bob Collie, head of research at the institute, cautioned firms to think about the causes of increased regulation.

“The regulatory burden on the industry is a symptom of a lack of trust. Rebuilding that trust means more focus on the long term. Without a clear sense of purpose, you can end up being just another one of 500 firms fighting for elbow room in an ever-more-challenging environment.”

Key investor interests in 2018 came through in sustainability and the importance placed on a firm's investment culture. The report urged fund managers to use this momentum and focus on delivering tangible results in both areas to help them differentiate.

As talk on sustainability turns into action, "the leading firms will be the ones who manage to close not only the saying-doing gap, but also the doing-impact gap, which is the shortfall between the desire for a more sustainable economy and the ability to create it,” the report said.

Collie added that creating a culture where sustainable investing can flourish "starts at the very top and requires leaders to step up, demonstrate clear values and show the courage and determination to invest in projects that create a better society for all.”

His research also highlighted the growth of asset managers represented from the US, Canada, China and Australia. In 2008, managers from China, for example, had a 0.33 per cent share of global AuM. In 2018, this had risen to 2.7 per cent, while asset managers from Japan and some European markets have lost market share. In Asia, asset managers from China now make up nine of the Top 20, compared with three in 2017.

“In Asia, we’re continuing to see the rising contribution of China to the global asset management community, with Chinese representation in both distribution of assets and assets under management increasing,” Jayne said. “This shows how, despite ongoing uncertainties connected to the US-China trade war, more and more investors are now seeing China as an opportunity to diversify their portfolios.”