Facts, Facts and More Facts: Mutual Fund Sub-advisory – Partnerships and Asset Class Expertise Drive Growth

Mutual fund sub-advised assets grew by 5.8% over the first quarter of the year to reach $137 billion at March 2012. The sub-advised share of mutual funds decreased by 0.1% in the quarter to settle at 16.0%. Equities and fixed income each recorded 6.6% growth in the quarter. International and U.S. equities responded to positive economic news in Europe, as these categories grew by a combined 8.5%. Manager turnover activity was relatively quiet with $1.8 billion changing hands and a net of six funds adding in-house managers in the six-month period ended March 2012. One example of a fund moving in-house involved CIBC replacing a sub-advisor with its recently acquired manager, American Century. Since acquiring the U.S. asset manager in September 2011, CIBC has added it to four mandates and, this May, CIBC announced that it will add American Century to four more funds in July. While vertical integration of fund complexes remains a threat to the sub-advisory opportunity, new fund launches drove the number of sub-advised funds higher in the first quarter of 2012.

The mutual fund sub-advisory business remains highly competitive, with 272 managers competing for 1,061 mandates on 761 funds. The largest 20 managers accounted for 53.2% of assets. Strong partnerships with fund companies benefited both asset and growth leaders. Mackenzie, the largest sub-advisor with a 5.9% share, sub-advises solely for MD, a relationship it acquired through its acquisition of Saxon from MD in 2008. Mawer Investment Management led the pack in terms of three-month growth (20.2%), added $300 million in the quarter from Manulife-branded funds alone. Mawer partnered with Manulife to launch several funds in 2008, a relationship that now represents $1.5 billion of Mawer’s $2.1 billion in sub-advised mutual fund assets. Asset class expertise helped others achieve growth. State Street Global Advisors was the greatest-gaining sub-advisor in the fixed income and balanced categories, adding a combined $400 million in assets. Three other sub-advisors in the top 20 exhibited double-digit three-month growth rates: Guardian Capital, the leading equity income manager, T. Rowe Price, the largest U.S. equity sub-advisor, and Beutel, Goodman & Company, the second-largest fixed income sub-advisor. For more information on sub-advisory, please refer to the quarterly mutual funds update of the Managed Money Advisory Service http://investoreconomics.com/issue/managed-money-advisory-service. Posted by Kevin Spraggs Kevin@iei.ca and Andrew Dranfield Andrew@iei.ca.