Tuesday, 17 September 2013

The world of giant money managers and the advance of passive index ETF investing

The Royal Bank may be the biggest company by market cap in Canada but Manulife is a far bigger money manager according to the 2012 P&I / Towers Watson World 500 list. (Access to most stuff on the Pension & Investments website requires free registration) The year-end 2011 data published last October puts Manulife in 34th spot worldwide with $490 billion vs only #53 Royal's mere $308 billion. Others insurers Sun Life (#37, $456 billion) and Great West (#48, $357 billion) also come ahead of the Royal.

The slide deck also highlights other interesting facts:
  • Canada has progressed strongly since 2001 and now looks to be about 6th largest in assets managed by country
  • Manulife and Great West have been among the fastest growing asset managers
  • passive managers have been picking up share, growing faster than the overall average for years, as shown by the chart below, led by #1 behemoth Blackrock, #3 State Street and #4 Vanguard

  • the shift to passive index investing is also remarked in this September 16th article based on 2013 6-months data; both Blackrock and State Street folk note the surge in their index funds amongst the overall market 18.4% rise in index assets
  • and another article notes that it is ETFs where the growth is occurring

The above rankings do not include big pension funds, which are in a separate list, the P&I/Towers Watson World 300. In that list, published September 2nd this year with data to end of 2012, the Canada Pension Plan Investment Board (CPPIB) comes #9 in the world with a mere $184 billion, with Ontario Teachers #17 at $130 billion, OMERS #46 with $61 billion. There are various other public service plans in the list before one reaches the largest private company pension plan in Canada - Bell Canada #216 in the world with $17.8 billion in assets. The amounts are relatively puny compared to the assets managed by private managers. Manulife and Sun Life alone manage more assets than all the 19 big Canadian pension funds amongst the world's top 300 put together.

Now we know who controls the money but they mostly don't actually manage it since their method is dominantly passive index investing. It would be more accurate to say they administer the money. The pension funds on the other hand are more a mix of active investing, as we have observed at the CPPIB (and increasingly activist too i.e. trending towards responsible investing). So maybe the pension funds do set the direction of markets.

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