This correspondent hasn’t been to the gym in a while, but is this really what a modern barbell looks like?
No matter. The graph is supposed to help explain Morgan Stanley’s argument that a guiding theme in the asset management industry is “barbell polarisation” – money is increasingly going to either passive managers and exchange traded funds, or to hedge funds and other alternative managers.
So it’s “cheap or spicy” – and the main driver continues to be performance versus cost.
Huw van Steenis and his team at Morgan Stanley this week published an 80 page update on the European asset management industry, noting the continuing deterioration in the outlook for traditional managers and at the same time an accelerating rationalisation of alternative managers as winners and losers in the hedge space diverge.
The top 100 hedge funds now represent 69 per cent of total hedge fund assets, up from 56 per cent in 2006, according to Mr van Steenis. The analyst sees “massive” rotation between winners and losers in the sector after the years of plenty.
Overall, we think a number of superleague managers will continue to break-away benefiting from institutional inflows, strong risk management platforms and a broader range of strategies, and remain talent magnets as investment banks and traditional money managers become less rewarding places to work..
Large platform players should be relative winners. Man Group looks set to continue to win share, although sales remain ever dependent on AHL. Larger platforms (OZM, GLG — not covered) have the potential to win through, as do many of the leading non-quoted players, particularly if they can access the institutional market. But we see a far tougher outlook for smaller, concentrated models.
Along the way, the MS man reckons business models will continue to morph, with successful asset managers diversifying into a broader range of strategies and asset classes, gaining more long duration capital institutional assets. He notes the example of Blackstone, which has hedge fund of funds, distressed debt, emerging market mutual funds, mezz funds, hedge funds and a range of private equity.
We expect there could be half a dozen listed alternative managers with US$50bn+ assets in 3 years time (vs. just two today); we think these managers may use low valuations to acquire complementary disciplines either as teams or whole businesses, notwithstanding the slowing of global flows.
Meanwile, to further illustrate the barbell analogy, Mr van Steenis presents figures for net new money growth, with those providing structured products and low cost beta joining specialist alternative managers as the obvious winners.
Maybe the analyst should have just used this: