Download pptx - The Ever Evolving Asset Management Industry An Industry Review at 2013 and Beyond Mark R. Anderson, CFA National Investment Services, Inc

The Ever Evolving Asset Management IndustryAn Industry Review at 2013 and BeyondMark R. Anderson, CFANational Investment Services, Inc.

Agenda

The Titanium Family of Companies:

Boyd Watterson Asset Management National Investment Services Titanium Real Estate Advisors Wood Asset Management Cleveland, OH / Charlotte, NC Chicago, IL / Milwaukee, WI Chicago, IL Sarasota, FL

1. Introduction

2. Historical Look at Consolidation Trend Among Asset Managers

3. Current Industry Statistics

4. Trends in Asset Allocations & Expected Capital Flows

5. Questions

2

TITANIUM ASSET MANAGEMENT



Mark is the co-manager of the NIS Preferred Stock Fund.

He also manages municipal bonds in our fixed income portfolios.

Specializes in equity futures and ETF trading.

Writes our Economic and Fixed Income market updates.

National Investment Services, Inc., 2000- Associated Trust Company, 1995-2000 Associated Bank, 1993-1995 University of Wisconsin, Stevens Point, BS, 1991 13 years with the firm 20 years of investment experience

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Mark R. Anderson, Vice President, CFA

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Diverse Client Type Taft Hartley: 34%

Pension and other WelfarePlans: 13%

Government: 12%

Corporate: 11%

Charitable: 8%

Other Institutional: 9%

Retail: 13%

Our Team

Titanium is comprised of 72 employees 30 investment professionals with an average of 21 years in the industry

9 veterans dedicated to our client and consultant relationships

14 CFA charter-holders

Our Philosophy Titanium offers our clients disciplined institutional investment strategies with a high level of personalized service

We frequently design customized investment solutions

Who We Are Titanium Asset Management is a collection of four asset management firms, each primarily focused on a particular asset class

Offers Fixed Income, Equity and Alternative Investments

Offers Real Estate: QPAM Advisory Services

Over $8.7 billion in assets under management

Clients include: Institutional, High Net Worth, and SMA

Data as of 9/30/12



US Fixed Income 88%

US Equity 8%

Alternative 3%

Real Estate 1%

Assets by Strategy

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TITANIUM ASSET MANAGEMENTTwo Decades of Consolidation

Over almost 20 years, the 37 financial companies listed below have been folded into four extremely large and complex concerns with global reach and a one-stop-shopping approach to the financial services.

1990- 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Traveler's Group

Citicorp Citigroup

European American Bank Citigroup

Banamex

Washington Mutual

Great Washington Financial

H.F. Ahmanson

Dime Bancorp

First Chicago

Banc One

First Commerce

J P Morgan

Chase Manhattan

Chemical Banking

Bear Stearns

US Trust

MBNA

Continental Bank

BankAmerica Security Pacific Bancorp

NationsBank

Fleet Financial Bank

BancBoston Holdings

Bay Banks

Summit Bancorp

UJ B Financial

Countrywide Financial

Merrill Lynch

Wells Fargo

First Interstate Bancorp

Norwest Holding Company

SouthTrust

Wachovia

Central Fidelity National Bank

CoreStates Financial

First Union

The Money Store

Washington MutualWashington Mutual

J PMorgan Chase

J PMorgan Chase

Bank One

Chase Manhattan

First Union

Wells FargoWells Fargo

Wells Fargo

Wachovia

Wachovia

Bank of America

BankBoston

Summit Bancorp

FleetBoston Financial

Bank of America

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Asset Managers Tend To Work Best During More Robust Economic Stages…

Asset Manager P/E vs. Fed Funds

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09

Fe

d F

un

ds

(%

)

9x

12x

15x

18x

21x

24x

FT

M P

/E R

ati

o

Fed Funds Citi Asset Manager Universe

Median Forward P/E = 16.2x

Fed Funds Average = 3.7%

17x

+1 StandardDeviation

-1 Standard Deviation

Franklin Acquires TempletonOct 1992

Merrill Acquires MercuryDec 1997

Lehman Acquires NeubergerJuly 2003 BLK Acquires MLIM

Oct 2006

BLK Announces BGIAcquisition June 2009

Source: FactSet, Bloomberg, Haver, Company Reports and Citi Research


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Returns of Publicly Traded Asset Managers Highly Correlated to Stocks


Source: Bloomberg

8Source: Lipper, AllianceBernstein, Citi Research

A Large Industry in Slow Growth Mode


U.S. Retail is Saturated…at Least When it Comes to Mutual Funds

Note: share defined as % of trailing 12-month industry U.S. retail flows from largest managers ranked by AUM; LT MF excludes ETFs; Data through July 2012 Source: ICI, Strategic Insight Simfund, Company Reports, Citi Research

6%

11%12%

20%22%

25%27%28%

33%

41%45%

48%44%42%43%43%44%44%45%

43%45%44%

0%

10%

20%

30%

40%

50%

60%

80 82 84 86 88 90 92 94 96 98 00 01 02 03 04 05 06 07 08 09 10 11

U.S

. H

ou

se

ho

ld O

wn

ers

hip

of

Mu

tua

l F

un

ds


9

1.4%1.9%

2.6% 3.0%

4.6%5.5%

7.0%

9.2%10.0%

11.0%11.6%11.8%

3.9%

0%

2%

4%

6%

8%

10%

12%

14%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012YTD

% U

.S.

Ret

ail

AU

M

ETFs

ETF’s are Gaining Popularity and Margins are Pressured

Source: ICI, Citi Research


10

11

Global Active Managers Outperforming Benchmarks

52%

39%

0%

10%

20%

30%

40%

50%

60%

2000-2011 Average 2011

U.S. Active Managers Outperforming Benchmarks

49%

16%

0%

10%

20%

30%

40%

50%

60%

2000-2011 Average 2011

Source: Lipper, AllianceBernstein, Citi Research

Active Managers Recent Performance Has Been Like Flipping A Coin; No Wonder Passive Is Taking Share


12

ETF’s are Growing Faster than Mutual Funds During the Early Years


0

100,000

200,000

300,000

0 4 8 12 16

Ind

exed

Gro

wth

Du

rin

g E

arly

Yea

rs

MFs ETFs

Note: Cumulative flows for: 1) MFs = 1980-1999; and, 2) ETFs = 1993-2012TD

Data through September 2012

Source: Strategic Insight Simfund, Citi Research

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Equity sector correlations are high


Note: 30 Day correlation as of Dec. 7, 2012

Source: ConvergEx Group, Bianco Reasearch, L.L.C.

Utilities

Materials

Healthcare

Emerging Markets

Technology

Financials

Energy

Industrials

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

0.34

0.86

0.88

0.89

0.91

0.92

0.93

0.93

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While the U.S. Centric Market is Set to Expand Globally…


Source: Strategic Insight, Citi Research

70.3%

18.9%

2.9% 2.3% 1.2% 0.7%3.7%

0

200

400

600

800

1,000

1,200

1,400

US Europe Asia (ExJapan)

Canada Japan ME & Africa LatAm

Glo

bal A

UM ($

B)

0%

10%

20%

30%

40%

50%

60%

70%

80%

% A

UM

ETPs

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In the U.S., Institutional Funds are Changing in Different Ways

• Corporate funds are faced with huge funding gaps.– De-risking DB plans– Risk management is front and center– Shifting to DC

• Public funds are also faced with huge funding gaps and searching for ways to reach unachievable goals.– Political pressures growing– Focus on returns to close funding gaps– Staying with DB plans – for now

• The endowment model has been reaffirmed.– Closer link to sponsoring institution– Renewed appreciation for liquidity– Alternatives continue to dominate

Channel management has become more important

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Pension Plan Funding Gaps are Wide…


Note: Funding ratio¹ = ratio of asset values to liabilities, representative of a typical pension plan.¹ The asset and liability returns are for a hypothetical Moderate Risk portfolio compared to the return of BNY Mellon's "Typical" Pension Liability Index, using Reported Value discounting.

60

70

80

90

100

110

Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Pla

n F

un

din

g R

atio

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…Rates Have Collapsed (10 Year U.S. Treasury)


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Extended Duration of Investors’ Discontent

Fear and disillusionment as risk failed to generate returns in 2000’s

End of “wind at your back” 30 year secular return environment for bonds

Competing factors – need for more income but stronger risk aversion

Greater demand for outcome-oriented strategies rather than relative return

Large U.S. Public Funds Are Adding Alternatives


Policy TargetsEquities

Fixed Income

Real Return / Opportunity

Hedge Fund / Private Equity Cash Date

Prior 60% 26% 8% 6% 0% 2009

Current 56% 19% 15% 10% 0% 2010

Change -4% -7% 7% 4% 0%

Prior 58% 25% 10% 7% 0% 2009

Current 56% 25% 12% 7% 0% 2010

Change -2% 0% 2% 0% 0%

Prior 39% 34% 9% 15% 3% 2010

Current 39% 34% 9% 15% 3% 2011Change 0% 0% 0% 0% 0%

Prior 63% 24% 8% 4% N/A 12/31/08

Current 50% 25% 12% 13% N/A 12/31/10Change -13% 1% 4% 9% N/A

Prior 58% 31% 6% 5% N/A 6/30/08

Current 53% 26% 13% 12% -4% 6/8/11Change -5% -5% 7% 7% N/A

Prior 61% 26% 8% 5% N/A 6/30/08

Current 57% 26% 10% 7% N/A 6/30/10Change -4% 0% 2% 2% N/A

Prior 62% 38% 0% 0% 0% 2007

Current 45% 33% 0% 21% 1% 2/22/11

Change -17% -5% 0% 21% 1%

Prior 55% 27% 8% 10% 0% 6/30/07

Current 46% 27% 11% 16% 0% 6/30/10Change -9% 0% 3% 6% 0%

Prior 61% 18% 15% 5% 1%Current 57% 18% 17% 7% 1% 2/21/12Change -4% 0% 2% 2% 0%

Median Change -4% 0% 2% 4% 0%

Ohio State Teachers' Retirement System

Employees Retirement System of Texas

State of Wisconsin Investment Board

California Public Employees' Retirement System

Oregon Public Employees Retirement System

New York State Teachers' Retirement System

Ohio Public Employees Retirement System

New Jersey Investment Council

Colorado Public Employees' Retirement Association

Source: Towers Watson, various pension fund CAFRs, various company conference calls, Citi Research

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Strong (Private Equity) Returns Attract Attention


6.2% 6.0%

12.9%11.9%

5.5%

16.4%

0.2%

5.3%4.8%

16.6%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1-Year 3-Year 5-Year 10-Year 15-Year

Net

Ret

urn

U.S. Private Equity Index¹ S&P 500

Data through 6/30/12Note: Net return = pooled end-to-end return, net of fees, expenses, and carried interest. Source: Strategic Insight, Cambridge Associates, Citi Research

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Distribution of Monthly Returns Since 1994

0

10

20

30

40

50

60

70

80

90

<-3 -2 to -3 -1 to -2 0 to -1 0 to 1 1 to 2 2 to 3 3 to 4 4 to 5 >5

Percent

Mo

nth

ly F

req

uen

cy (

# o

f O

bse

rvat

ion

s) S&P 500 OZ Master Fund Ltd

OZ Master Fund: 81% of Monthly Returns Fall Between 0% and +4%

S&P 500: 42% of Monthly Returns Fall

Between 0% and +4%

Investors Like Predictability


Data through 11/30/12Source: Company reports Source: Strategic Insight, Cambridge Associates, Och-Ziff, Citi Research 22

And so is the Rest of the World

Source: ICI, Citi Research


0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011

Ag

gre

gat

e A

sset

Allo

cati

on

Equities Bonds Other Cash

Global Pension Assets (YE11) = $27.5 trillion

Note: Global Pension Assets account for Australia, Brazil, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherlands, South Africa, Switzerland, UK, US.

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TraditionalEquity/Fixed

Alternative

Traditional and “Alternative” Managers Are Converging

Rationale: Investors and consultants re-examining the necessity of constraints on

managers

Some success by eliminating constraints where there is little economic rationale such as liquidity issues, style box adherence, no shorting and leverage allowed

Following hedge fund “invest wherever and in any way” approaches, traditional managers are transitioning into absolute return-oriented approaches

TraditionalEquity/Fixed

Alternative

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Multi-capability firms are more competitive…

Average Firm Allocations2010 (%)

Source: eVestment Alliance, Pensions & Investments, Casey Quirk Analysis Source: David Barrett Partners analysisNote: 177 firm sample size ($19T in AUM). Results are the average for a sub-set ($6.6 T in AUM) comprising “more competitive” top, and “less competitive” bottom

quintiles in terms of 3 year revenue growth (2007-2010)

Executive search by Firm Type2009-2011 (%)

32%

57%

39%

20%

6%3%

8%

13%

16%8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

More Competitive Less Competitive

Equity FI Alternatives Cash Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2009 2010 2011

Multi-Product Firms Pure Play Firms

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Almost all incremental US institutional revenues will come from alts…Projected US Institutional Flows & Revenues

2011-2015 Cumulative

Sources: Casey Quirk Analysis

Flows: Revenues:

350 300 250 200 150 100 50 0 50 100 150 200

US EquityShort Duration

Core/Core Plus FIMortgage

Government CreditLeverage Loans

Other AlternativesDistressed

Public Real EstateHigh Yield FI

FoHFEmerging Markets Debt

Cash / OtherPrivate Real Estate

Private EquityLong-Duration FI

International/Global FIEmerging Markets Equity

Direct HFGlobal/Int'l Equity

$ billions

3 2 1 0 1 2 3 4 5

$ billions

43% of Flows71% of Incremental

Revenues

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Questions?

Thank You!

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Appendix

Key Attributes of Investment Firms

Projected Asset Flows by Client Type

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Investment Firms Can Be Thought of as Advisors or Boutiques

Advisor

Many products, multiple-asset classes.

Multiple distribution channels and geographies.

Investment excellence defined by value proposition which includes advice on liabilities, cash flow and fundamental investment objectives, risk tolerance and controls, and strategic decision-making.

Products achieving strong out-performance at a moment in time provide significant positive asset flows and allow “boutique sales to a broad range of clients, with a transcending value proposition and investment excellence philosophy.”

Sticky relationships include multiple mandates to limit client loss during periods of underperformance.

Clients include largest and most sophisticated global institutional investors.

Sales and relationship management requires sophisticated consultative investment professionals skilled at identifying client needs.

Advisory services are an explicit business offering, utilizing a fully developed range of sales executives, relationship managers, product specialists and advisers to service clients.

Boutique Narrow product range.

Investment excellence defined by value proposition based on superior investment returns.

When investment returns are strong, explosive growth occurs, generating rich economies of scale but often straining the organization at the same time.

Periodic significant periods of weak investment returns.

During periods of underperformance, high risk of losing assets and clients due to single product focus.

Vulnerability to key man risk and challenging successions/generation shifts.

Client service excellence consists of clarity in communicating the firm’s investment strategies, ensuring clients understand risks, and will tolerate inevitable periods of weak returns.

Advisory services are not offered, and limited use is made of product specialists.

Key Attributes of Advisory and Boutique Investment Firms

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U.S. equity and domestic core/core plus may continue to face shrinking flows

Continued low interest environment forcing clients to consider higher yielding/higher risk (emerging, non-dollar, MLPs, high yield)

Consultants expect more of these searches to involve manager replacement rather than new/increasing allocations

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Domestic Growth Is Expected to Vary Sharply Across Client Segments and Asset Classes

Market dataAnnual net new flows as % of AUM: not available <0% 0%-1.9% >=2%

Fixed Income Equity Inv. Grade High Yield Global Domestic Int'l Devt.

Emerging Market

Real Estate

Private Equity

Hedge Fund Other¹

Multi-Asset² TOTAL

Corporate DB $50 $175 $725 $20 $40 $370 $250 $50 $90 $160 $100 $50 $100 $2,180

Public DB $120 $650 $560 $50 $45 $300 $320 $65 $150 $200 $90 $40 $130 $2,720

Taft-Hartley $10 $50 $120 $5 $20 $40 $50 $2 $30 $20 $30 $50 $10 $437

IO-DC $50 $525 $630 $35 $10 $270 $80 $10 $5 NA NA NA $80 $1,695

Endowments and Foundations

$10 $75 $120 $15 $45 $40 $40 $15 $150 $150 $275 $105 NA $1,040

Insurance GA $20 $70 $800 $10 $15 $35 $35 $15 $120 $15 $10 $15 $25 $1,185

TOTAL $260 $1,545 $2,955 $135 $175 $1,055 $775 $157 $545 $545 $505 $260 $345 $9,257

Clie

nts

ProductsPassive Active FI Active Equities Alternatives

¹ Includes: commodities, infrastructure, energy investments, timber, farmland and FX Allocations.² Refers to Outcome oriented funds for IO-DC and Global Tactical Asset Allocation Funds and other segments

Source: McKinsey North America Institutional Asset Management Head Hap

32Source: Lipper, AllianceBernstein, Citi Research

Shifting Sands
