Profit Pinch Among European Asset Managers Prompts Changing Allocations

September 9, 2002 (PLANSPONSOR.com) - Declining profit margins among European asset managers until 2004 will likely lead to shifting asset allocation strategies, including putting more money in equities, hedge funds and private equity.

That is among the conclusions drawn by a new report by financial services strategy consultants Oliver, Wyman & Company and UBS Warburg, according to a Wall Street Journal news story.

The consultant report, “The Future of Asset Management in Europe – Past performance is no guarantee of future returns”, predicts, according to the WSJ, that:

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A greater chunk of portfolios will be dedicated to higher margin alternative investments such as private equity and hedge funds (average fee of 300 basis points in 2001), which will add EUR8 billion in revenues. Hedge funds and private equity should show annual growth of 38% and 27% respectively, according to the report.

“We believe that asset managers will retain premium valuations based on their gearing into financial markets,” Sarah Ing, diversified financials analyst at UBS Warburg, told the WSJ. “The few players with strong positioning in alternative investments have an interesting growth profile particularly in the light of difficult equity markets.”

An allocation increase will go to stocks (average fee of 94 basis points), which will add EUR5 billion in revenues.

A beefed up allocation will be dedicated to lower margin passive investments (average fee of 25-30 basis points), which will cut revenues by EUR6 billion. Total passive assets are estimated to grow at 23% annually between 2001 and 2006.

The report examines the market trends, strategic options and sustainable business models for European asset managers.

It concludes that, without strict cost control and significant structural change, the asset managers face a sustained period of poorer operating margins and profitability, according to the WSJ story.

Morningstar Manages Portfolios With New Program

August 21, 2001(PLANSPONSOR.com) - Morningstar has introduced the Morningstar Managed Portfolios program, a portfolio-management service for advisors who want to use external professionals for additional help with portfolio management and monitoring.

Morningstar Managed Portfolios is a fee-based investment-management program, which will initially feature mutual-fund portfolios, researched, engineered, and monitored by Morningstar Investment Services, as well as back-office operations and support services.

An online solution will provide complete client account management capabilities and marketing and sales support.

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Client portfolios will be continuously monitored, rebalanced and adjusted based on market performance and portfolio information.

The group has entered into an agreement with online brokerage clearing and trade-execution firm, Fleet/US Clearing, to offer the program to financial advisors, including its 275 correspondent broker-dealer clients.

The new program is scheduled for launch in the fourth quarter and separate accounts, allowing for portfolios to be created using mutual funds, will be added next year.

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