ISS Market Intelligence Market Insights | Released June 17, 2021
There is No One-Size-Fits-All Approach to the Sub-advised Market
When looking to win new mandates, asset managers will often overlook a key aspect of their business that can either help them win or hurt their chances: scale. Outperformance and competitive pricing go a long way towards winning a mandate. Still, by thinking through their firm’s size and investment capabilities, asset managers can better direct their efforts towards fund sponsors who will be more receptive to their unique value proposition.

The sub-advisory market in the U.S. is still driven by mutual fund and variable annuity providers, but the needs across those two vehicles differ considerably. Insurers offering sub-advised products want to leverage relationships where an asset manager’s scale can help with marketing efforts (through product branding as well as fund distribution) and taking advantage of a wholesaler-network for sales support. Mutual fund sponsors care less about an asset manager’s brand as they move away from single-manager funds towards a multi-managed structure. This latter structure makes a manager’s ability to generate alpha and complement existing sub-advisors a priority.
Figure 1: Sub-advised Assets Grow in Single-Manager VA Funds and Multi-Manager Mutual Fund
Source:  Genesys Research.
Note: Excludes fund-of-funds
With COVID-19 on the decline, fund sponsors have already started to make sub-advisory changes that were put on hold when the industry slowed to a crawl in 2020’s first half. Asset managers that want to win new business need to be mindful of where their size and product capabilities will make them most effective. Larger sub-advisors have continued to enjoy success winning stand-alone mandates, while smaller firms have benefitted from having more niche investment capabilities. These specialized managers are picking up sleeves in multi-managed portfolios seeking diversification and winning standalone mandates in capacity-constrained asset classes where a specialized knowledge of the space is crucial.

As Figure 2 (below) shows, the large cap categories have been the most active over the past year and a half, which has provided a good mix of opportunities for asset managers of all sizes and investment styles. Larger asset managers continue to benefit from fund consolidation within insurance platforms as sponsors look to slim down their product offering. Smaller firms have seen a boost from new mutual fund launches targeting more niche investment opportunities.
Figure 2: Large Sub-advisors Win More Single-Managed Funds, Smaller Sub-advisors Win More on Multi-Managed Portfolios, 2020 – H1 2021
Source: Genesys Research
Note: Excludes fund-of-funds and indexed assets; Tier 1: 10 largest sub-advisors, Tier 2: subadvisors 11-24, Tier 3: sub-advisors 25-49, Tier 4: sub-advisors 50+
Whether big or small, asset managers continue to have opportunities to grow their business going forward and will benefit from focusing not just on the quantitative side of a pitch, but by approaching mandate opportunities with a more holistic understanding of the landscape and the value they bring to the table.

Read Previous Market Insights
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December 16, 2020 | Transparent or Not, Investors Finally Come Calling on Active ETFs 
November 20, 2020 | Fund Flows Soar on Vaccine and Election News
October 9, 2020 | ETFs Witness Wide Swings in Market Volatility
August 26, 2020 | Taking Stock of the Pandemic’s Effects on Active Management
August 7, 2020 | After Sharp Move from Money Markets in June and July, What Comes Next?
July 20, 2020 | In Wild 2020, Fund Investors Find Virtue in ESG Factors
June 19, 2020 | Product Development During the Pandemic: A Renewed Push for Active 
June 5, 2020 | As Fed Supports Bond Markets, Demand for Credit Risk Bounces Back
May 22, 2020 | Slow Recovery Ahead for Long-Term Fund Flows
April 30, 2020 | Fixed Income Funds Return to Inflows as Volatility Subsides (for Now)
April 16, 2020 | Equity Fund Investors Stay the Course Amid Historic Bond Outflows
April 9, 2020 | A Measured Turnaround
April 6, 2020 | Amid Flight to Safety, (Slightly) Less Pain for ETFs
April 1, 2020 | From a Trickle to a Flood
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Just Released: 2020 Asset Manager Profitability Report
Despite the turmoil unleashed by the COVID-19 pandemic, public asset managers saw profitability rise modestly in 2020. Thanks to strong markets, assets—and revenues—grew. Because managers have made their operations more efficient in recent years, such growth increased profitability, if only modestly. 

The 2020 Asset Manager Profitability Report explores the factors that drove changes in profitability over the past year and puts them into longer-term context. With data gleaned from 27 asset managers’ public filings, this report enables business leaders and fund boards to benchmark their firm’s performance against their competitors