The global funds management industry is experiencing one of the greatest shake-ups in its history.
Several investment banks have disposed of part or their entire asset management outfit in a desperate bid to replenish capital.
Meanwhile, predators have been swamped with bargains that are likely to boost their long-term earnings and make them even more dominant in the market.
For several firms, the trail of destruction caused by the financial crisis has presented them with the opportunity they were for so long looking to seize.
BlackRock, Credit Suisse Group and Aberdeen Asset Management are among the companies in the thick of the action, while there are rumours circling around Schroders spending some of its big cash pile on an acquisition.
However, with all this consolidation going on, does this mean Australian financial advisers are going to be left out in the cold in terms of being able to access new products and services?
Will this also lead to some asset managers following a number of foreign banks in leaving Australian shores?
The collective response is a resounding no.
"Our business has been exceptionally stable in Australia during this tumultuous time," Schroders chief executive Greg Cooper says.
"We're one of the few firms here who haven't taken action to reduce costs domestically because we figure that at times like this being big and well capitalised gives us a competitive advantage.
"And we should be using that advantage. What we've got is right and we'll be a net beneficiary of the consolidation going on in the market."
In the fourth quarter, when stock markets around the world were collapsing and firms were firing employees, Schroders hired Australian equity analyst Daniel Peters, business development manager Jasmine del Villar and quantitative equities analyst Michael O'Brien.
Schroders also gained net inflows in 2008 as clients fled smaller firms facing the most basic and critical issues: cash flow and survival. "While our performance across the board has been very good, I think there is a swing away from smaller, less well-capitalised institutions to those people who've got good compliance, good sized teams and who you know are going to be around for the long term," Cooper says.
Schroders parent, Schroders Plc, traces its roots back to 1804 when it began operations as a merchant bank. It set up business in Australia in 1961 as a joint venture called Schroder Darling. The firm's Australian equities and balanced funds are some of the oldest locally.
Schroders Plc sold its investment banking business to Citi for £1.3 billion in 2000 and reverted to a pure active fund manager and private banking operator.
The group posted net income of $145.9 million in 2008 and still has $2.5 billion cash in its war chest.
"It's obviously a pretty good position to be in globally. But when the only thing you do is asset management, you've got to get it right. So we're not part of a larger investment banking or broader financial services conglomerate where asset management might be just a small bit," Cooper says.
Overseas reports say Schroders is set to use some of that dry powder for a well-targeted acquisition. Its most recent acquisitions included the March 2008 reinsurance giant Swiss Re's third-party fund management business followed by an acquisition of a funds management business in Taiwan in August 2008 to supplement the existing Taiwanese business. Cooper says the firm's head office in London has given him the authority to look at businesses in Australia if appropriate.
"Our chief executive Mike Dobson has been quite explicit in saying that if there are the right sorts of businesses out there to acquire then we're happy to look at them," he says.
"We've been noted in the press in the last 12 months for looking at different businesses. But we're not going to acquire for the sake of acquiring businesses or the sake of growth. We'd only acquire if it made sense for the overall business in the long term."
In terms of organic growth, the firm may look to expand the variety of products offered through its global and emerging markets capabilities, he says.
"Last month we actually launched some funds around our global equity strategy, which has got different hedged and unhedged versions, and we've also launched global quality and dynamic blend strategies as funds for smaller clients," he says.
"We also see quite a bit of demand in terms of segregated institutional mandates."
The prospects of Schroders acquiring or building a passive funds business are limited, he says. "We're an active manager and we have done very well with that," he says.
"Passive is a scale game. You don't want to set up a new passive house tomorrow because it will take you a long time to compete with the large passive players who have large entrenched businesses."
However, Cooper has not ruled out the possibility of Schroders setting up a private banking operation in Australia.
"That's sort of a decision that gets made separately within Schroders private bank. However, we are always looking at different things we might do to leverage our strong local position, so I won't say yes and I won't say no," he says.
He says Schroders plans to be in Australia for the long term. "Absolutely. We've got a huge franchise here and the UK recognises this business as a success," he says.
While Schroders experienced a relatively smooth ride during the onslaught of the financial crisis, relative newcomer Credit Agricole Asset Management (CAAM) Australia has not.
In 2009, the firm closed the CAAM AI Diversified Fund, a feeder fund into one of the firm's global fund-of-hedge-funds products, CAAM Australia and New Zealand country head Richard Borysiewicz says.
"[Last year] was a once in a 50-year event, the severity of which no-one could have predicted. Many organisations, including ours, looked at their product line-up and made adjustments to suit the market," Borysiewicz says.
"Our decision was based on the events of 2008 and the product's relevance in the changed market environment - rather than the product itself.
"Despite the closure of the CAAM AI Diversified Fund, we remain active in the institutional market and are open to institutional mandates for our alternative investment capabilities."
The firm's business plan is still on track. Its assets under management (AUM) remained stable during 2008 with no client departures thanks to the performance in global fixed income.
CAAM Australia's AUM topped $1 billion some time ago. The firm now manages $1.25 billion, with further funding of already won mandates to come. "So far 2009 has been positive, with existing clients providing fund inflows and new business wins in global bonds, volatility and global inflation-linked bonds," Borysiewicz says.
"We are fortunate in that our parent company is patient with a long-term view, so we are working to a three-to-five-year plan - not simply a one-year plan. In terms of our three-year plan, we are tracking nicely despite the difficulties of the 2008 market."
The company has also made strides in gaining recognition from platforms and research houses. "We have gone through the process and are now listed on the BT Wrap and Colonial FirstWrap," Borysiewicz says.
He says the Global Bond Fund has received a recommended rating from Lonsec, and the Global Emerging Markets Fund has a four-star rating from Standard & Poor's (S&P) and a recommended rating from Zenith. "With these ratings, we are now talking to a number of dealer groups and expect to see positive results in the second half of this year. The feedback we have received from the market is that there is genuine interest in our funds," he says.
CAAM is the asset management arm of French bank Credit Agricole, a member of the CAC 40 Index. The bank overall reported a net profit of $1.78 billion in 2008, a 75 per cent decline from 2007.
In late January, Credit Agricole announced a plan to merge its asset management operations with French bank Societe Generale's asset management business. Credit Agricole would own 70 per cent of the entity and Societe Generale would own the rest.
The move was made to create scale in a changing global funds management landscape.
CAAM had $762 billion in AUM across European fixed income, international fixed income, stocks, managed accounts, real estate and hedge funds at the end of March.
It has offices in more than 20 countries, with its main source of assets being Italy (31 per cent), UK/Japan (22 per cent together) and the Benelux region (10 per cent). Australia accounts for 1 per cent.
The firm's Australian outpost was established in Sydney in early 2007, and head office chose to employ a local team with solid experience and knowledge of the Australian market, rather than importing a foreign management team, Borysiewicz says.
"Before we introduced any products, we engaged with the market for some time so we could assess what the market wanted and where there were shortages. We had a wide choice in terms of which CAAM products we could then introduce," he says.
"For example, we found that in global emerging markets we had a natural advantage with a long track record, stable investment team, good performance and a differentiated approach, so it was a natural choice."
CAAM is fully committed to remain in the Australian market and hopes to become a major industry player in the long term among advisers and institutions.
"CAAM has always seen Australia as a strategic market. A key element of our five-year plan is a robust model with both institutional and retail to reflect the capabilities of the group," Borysiewicz says.
"We may also introduce local money management capabilities in Australia as part of our five-year plan, but we will be careful to have the right fit with our culture.
"Of course, once the planned merger project between Societe Generale Asset Management and CAAM is carried out, this will further reinforce our presence in Australia with a larger local entity."
Across the border, near the start of this year, Credit Suisse Group made the decision to shift its long-term core focus to alternative funds management by selling $77.1 billion of its traditional assets under management to Scotland's Aberdeen Asset Management.
The Swiss giant has $462 billion of AUM globally, of which $163 billion is in alternative asset classes, including private equity, real estate, hedge funds and fixed income, Credit Suisse Australia head of asset management Filo Sedillo says. "In addition, we continue to run a traditional asset management business in Switzerland as well as our multi-asset class solutions business," Sedillo says.
"Credit Suisse ranks amongst the world's top five alternative asset management platforms, with 2200 professionals in more than 20 countries. These are just a few basic characteristics that differentiate us amongst our alternative asset management peers.
"The alternative asset management business is a core component of our clients' long-term portfolio management structure. We have aligned ourselves with our clients and therefore view the business as core and strategic."
Although the overall Credit Suisse Group has absorbed billions of dollars in write-downs and is experiencing slowing revenues, there has been no impact on its local asset management operations.
"Credit Suisse has weathered the financial storm better than most, both globally and locally," Sedillo says.
"We have continued to make progress on our strategy to focus on asset allocation, our Swiss businesses and alternative investments and more closely align them with the integrated bank. In the first quarter our revenues globally from asset management fees were resilient and our asset base stabilised. In alternative investment strategies, asset management recorded net inflows of [$1.14 billion] in the first quarter, confirming the strength of this franchise.
"We are convinced that alternative investments will be an important asset class for our clients and one in which we can excel and provide the best returns in the business."
Despite some of its well-known funds having been sold to Aberdeen, Australia is still an important asset management market for Credit Suisse.
"Australia continues to be an integral market for Credit Suisse with regard to asset management and we continue to run a fully-resourced and operational asset management business focusing on alternative investments here," Sedillo says.
"Our insurance-linked strategy is one example of a number of solutions within our suite of products and services across a range of asset classes. We are also building our top-quality local Australian capabilities, such as real estate securities and credit strategies.
"We are able to customise and tailor alternative investment solutions to satisfy a range of client fiduciary requirements."
Following the panic following investment bank Lehman Brothers Holdings' collapse last September, Swiss authorities in October reportedly forced Credit Suisse and rival UBS to shore up their balance sheets.
Credit Suisse managed to raise $10.9 billion privately from a small group of major global investors. UBS arranged a $6.8 billion government loan and was allowed to offload up to $74.6 billion of risky assets into a fund backed by the Swiss National Bank, the country's central bank.
UBS had its worst-ever year in 2008, posting a $22.8 billion loss, the biggest in Swiss history. The deficit stemmed from billions in write-downs from securities infected by US sub-prime mortgages.
However, it has been a different story for its funds management arm, UBS Global Asset Management (UBSGAM). The division has been successful and has led group revenue.
Performance of its global capabilities generally improved in 2008 against benchmarks and especially compared with peers, with a higher proportion of the traditional business capabilities outperforming their benchmarks relative to the same universe of funds in 2007.
Fifty per cent of traditional active strategies outperformed benchmarks in 2008 versus 30 per cent in 2007.
Still, UBSGAM Australia head Paul Bolinowsky says the media attention on UBS's balance sheet has made the company more proactive with clients. "If something is in the media, I think it's very natural and understandable that clients will ask us about it. We continually work with our Australian clients to be transparent with them, which they appreciate," Bolinowsky says.
While global events have not impacted on the firm's five-year business plan, there have been short-term implications.
"If we take more of a short to a medium-term view, we have to recognise that the footprint of our business has reduced as it has for many of our competitors," Bolinowsky says.
"We've had to respond to that reduction in footprint by reassessing costs wherever it has been relevant to do so and somewhat refocus on what we truly believe are the core competencies we should be offering to clients in this marketplace."
UBSGAM Australia has been working through a two-year plan that would hub some of its logistics functions to the Singapore office with the aim of boosting efficiencies in IT support, operations and technology support for Australian mandates.
"Those initiatives combined with the closure of a small number of non-core products, such as the Global Infrastructure Securities Fund, has resulted in headcount reducing by approximately 20 per cent in Australia for UBSGAM," Bolinowsky says.
UBS introduced a Global Infrastructure Securities Fund locally in early 2006 because the firm believed that from all the research available, infrastructure securities would provide clients' portfolios with meaningful diversification from more broad global equity market beta.
"To our concern what we observed through the duration of the global financial crisis was that the behaviour of the infrastructure fund was perfectly correlated with more broad equity markets," Bolinowksy says.
"Because of that we determined that the vehicle was unlikely to ever achieve the investment objectives we had set the vehicle in the first place and it was that reason we decided to close it. It was not about FUM [funds under management] or whether it would be popular or not."
The UBS Global Infrastructure Securities Fund closed in February 2009.
The departures of well-known UBSGAM equities fund manager Paul Fiani and other staff in 2007 also temporarily hurt the business.
"The challenge we faced was to achieve adequate ratings for the equity capabilities we offer here given the industry's concern with a senior departure from our firm back in the middle of 2007, which resulted in broad-based ratings downgrades for our Australian equity capability," Bolinowsky says.
"And as a consequence of those downgrades we did experience significant outflows form both our wholesale business and our institutional business."
UBSGAM Australia's business has stabilised recently, in part due to the global stock market rally that began in March.
"The outflows have certainly dried up, which is good. My observation across the industry is that whether clients are consumers or institutions, we are not seeing a material pursuit of risk in the marketplace yet," Bolinowsky says.
"So even though yes, we're very pleased that we've witnessed the equities rally and that we're not seeing significant large flows yet, but we anticipate that might accelerate in the second-half of the year."
Other positives have included UBS's flagship funds outperforming rivals and the bond fund in particular adding a number of key institutional clients over the course of 2008.
Another win for UBSGAM Australia was the commencement of its direct infrastructure client base in Australia. "We're very excited about the longer-term prospects of our direct infrastructure business," Bolinowsky says. The UBS Infrastructure Fund raised $1.5 billion by November 2008, with investors including Future Fund of Australia and Devon County Council. The fund has acquired stakes in US power generation company Northern Star generation and UK water company Southern Water.
The direct fund will only be available to institutional clients at this stage.
"Conceptually it's something we could do for the retail market, but there are concerns about liquidity because these are very long duration investments, typically for 10 to 15 years, and there is no monthly or daily liquidity for investors," Bolinowsky says.
UBSGAM's long-term plan is to capture more market share in areas where it has strong capabilities, including Australian equity, fixed income and small caps.
"If we can achieve something in the order of 5 per cent market share in the categories that we have core strengths in, I think we'll have gone a long way in achieving our financial objectives as a consequence of succeeding with those categories," Bolinowsky says.
Across the Atlantic, several big US fund managers are either benefiting from industry consolidation or sitting on mountains of cash and soaking up more inflows.
Franklin Templeton Investments Australia (FTIA) topped $5 billion in AUM as at May 2009, from $4.5 billion at the end of 2007. "Over this time we have seen the addition of a number of new mandates with minimal loss of business," FTIA senior manager of distribution Louise O'Riordan says.
The firm's San Mateo, California-based parent, Franklin Resources, sat on minimal leverage and $6.3 billion in cash and investments as of 31 March and has an A-plus credit rating from research house Standard & Poor's.
Nonetheless, the financial crisis has made the firm think more about costs and efficiency generally at the local level.
"We merged the institutional and retail distribution teams in June 2008 to better align our service model with the structure of the industry and clients. The integration of these two units resulted in one staff reduction and in our not filling open positions," O'Riordan says.
The firm's five-to-10-year Australian business plan is to maintain and increase market share.
"We are a relatively new entrant to this market, however, since our launch in the retail space in 2005 we now have five funds for financial planners to access for their clients," O'Riordan says.
That's soon to be six with the launch of the Franklin Global Multisector Bond Fund next quarter. "We recognise that the Australian market is competitive and our focus has been to identify key Franklin Templeton investment strategies where we provide a best-of-breed investment solution and offer these as local Australian-domiciled funds," O'Riordan says.
The firm's emerging markets offering, led by the widely-followed Mark Mobius, was recently awarded a highly recommended rating from research house Lonsec.
The biggest industry story by far though has been none other than BlackRock's agreement to purchase the colossal Barclays Global Investors unit from British bank Barclays in an industry record $17 billion deal. BlackRock will manage $3.4 trillion after the transaction is concluded; double that of nearest rival State Street Corporation.
However, the size of their nearest rival does not seem to faze the industry's players from revelling in the cutthroat competition. They all have a desire to tap into sophisticated investors and are also attracted to Australia's compulsory superannuation system.
Fund managers, whether they are from Britain, France or the US, will find their niche of loyal supporters as long as they construct good products for clients' long-term needs.
