Analysts see return to higher savings rates, more focus on diversification
Bloomberg 13 November 2008
(BOSTON) The global financial crisis will reshape the funds management business in terms of competition, government regulation and investors’ taste for products, the chief executive of US asset manager Vanguard Group said.
‘There will be profound changes in the way investors look at the world, going forward,’ Bill McNabb told Reuters in a telephone interview on Tuesday.
‘We are going to see a return to higher savings rates and much more focus on diversification,’ Mr McNabb, who took over as CEO in late August, said.
Vanguard is the second- largest US mutual fund firm after Fidelity Investments and manages about US$1 trillion in assets.
Mr McNabb’s comments come as the plunge in global markets severely erodes assets of fund companies, forcing them to axe thousands of jobs.
Investors and fund firms will focus on ‘balanced’ products, which will not only include stocks and bonds but also alternative assets and cover a global market, Mr McNabb said.
Target-date retirement funds, which automatically adjust allocations between different asset classes depending on the age of an investor, will also see stronger demand, he said.
‘They don’t insulate you fully from a downturn but they protect you from a dramatic downturn,’ Mr McNabb said, adding that he saw a rush of takeovers and mergers altering the industry’s competitive landscape. ‘There will be less independent asset managers a year from now than there are today,’ he predicted.
He said that Vanguard, which pioneered index mutual funds in 1976, fared better in the crisis than some of its rivals due to its diversified products and client base.
Vanguard’s funds have posted net inflows of US$68.9 billion in the first 10 months of 2008 compared with US$103.7 billion for the whole of 2007.
Mr McNabb added that Vanguard would prefer to grow organically and that most mergers do not work due to the differences in cultures of the partners. He said that his own distaste for acquisitions could be due to his stint a quarter of century ago at Chase Manhattan Bank.
‘I started my business career undoing bad acquisitions and leveraged buyouts. Maybe I am scarred by that experience,’ he said.
The Vanguard chief said that a new regulatory authority was needed to coordinate the oversight of the separate but increasingly interconnected segments of financial services such as mutual funds, banks, insurers and others. ‘It’s an initiative whose time has come,’ he said.
Vanguard’s exchange- traded funds (ETFs) collected net inflows of US$18.4 billion in the first 10 months of this year, with October alone bringing in US$2.8 billion, Mr McNabb said. By comparison, the fund’s ETFs got net inflows of US$18 billion for all of 2007.
Earlier on Tuesday, BlackRock Inc chief executive officer Laurence Fink said that he was seeing signs of ‘capitulation’ in financial markets, a broad sell-off that usually precedes the end of a bear market.
‘A year ago, I said we won’t see a bottom until we see a capitulation,’ he said at an investment conference in New York on Tuesday. ‘We are seeing a capitulation’, and financial markets may begin to recover by mid-2009, said Mr Fink, whose company is the largest publicly traded asset manager in the US.
Blackstone Group LP chairman Stephen Schwarzman, speaking at the same event sponsored by Merrill Lynch & Co, said that a global recession is not necessarily bad news for leveraged buyouts.
‘We’re quite optimistic about our new prospects,’ said Mr Schwarzman, whose company is the world’s largest private-equity investor.
Mr Schwarzman said that the biggest profits for private-equity investors have come during the worst economic times, pointing to recessions in the early 1990s and 2001, when investors earned average annual returns of around 30 per cent. The global credit crisis that took hold almost 18 months ago has stalled large-scale acquisitions, forcing Blackstone to focus on smaller deals that require less debt.
‘When you get all that debt, the prices go up,’ Mr Schwarzman said. ‘When the prices are low, you can make a tremendous amount of money.’
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Global crisis will shake up funds industry
Analysts see return to higher savings rates, more focus on diversification
Bloomberg
13 November 2008
(BOSTON) The global financial crisis will reshape the funds management business in terms of competition, government regulation and investors’ taste for products, the chief executive of US asset manager Vanguard Group said.
‘There will be profound changes in the way investors look at the world, going forward,’ Bill McNabb told Reuters in a telephone interview on Tuesday.
‘We are going to see a return to higher savings rates and much more focus on diversification,’ Mr McNabb, who took over as CEO in late August, said.
Vanguard is the second- largest US mutual fund firm after Fidelity Investments and manages about US$1 trillion in assets.
Mr McNabb’s comments come as the plunge in global markets severely erodes assets of fund companies, forcing them to axe thousands of jobs.
Investors and fund firms will focus on ‘balanced’ products, which will not only include stocks and bonds but also alternative assets and cover a global market, Mr McNabb said.
Target-date retirement funds, which automatically adjust allocations between different asset classes depending on the age of an investor, will also see stronger demand, he said.
‘They don’t insulate you fully from a downturn but they protect you from a dramatic downturn,’ Mr McNabb said, adding that he saw a rush of takeovers and mergers altering the industry’s competitive landscape. ‘There will be less independent asset managers a year from now than there are today,’ he predicted.
He said that Vanguard, which pioneered index mutual funds in 1976, fared better in the crisis than some of its rivals due to its diversified products and client base.
Vanguard’s funds have posted net inflows of US$68.9 billion in the first 10 months of 2008 compared with US$103.7 billion for the whole of 2007.
Mr McNabb added that Vanguard would prefer to grow organically and that most mergers do not work due to the differences in cultures of the partners. He said that his own distaste for acquisitions could be due to his stint a quarter of century ago at Chase Manhattan Bank.
‘I started my business career undoing bad acquisitions and leveraged buyouts. Maybe I am scarred by that experience,’ he said.
The Vanguard chief said that a new regulatory authority was needed to coordinate the oversight of the separate but increasingly interconnected segments of financial services such as mutual funds, banks, insurers and others. ‘It’s an initiative whose time has come,’ he said.
Vanguard’s exchange- traded funds (ETFs) collected net inflows of US$18.4 billion in the first 10 months of this year, with October alone bringing in US$2.8 billion, Mr McNabb said. By comparison, the fund’s ETFs got net inflows of US$18 billion for all of 2007.
Earlier on Tuesday, BlackRock Inc chief executive officer Laurence Fink said that he was seeing signs of ‘capitulation’ in financial markets, a broad sell-off that usually precedes the end of a bear market.
‘A year ago, I said we won’t see a bottom until we see a capitulation,’ he said at an investment conference in New York on Tuesday. ‘We are seeing a capitulation’, and financial markets may begin to recover by mid-2009, said Mr Fink, whose company is the largest publicly traded asset manager in the US.
Blackstone Group LP chairman Stephen Schwarzman, speaking at the same event sponsored by Merrill Lynch & Co, said that a global recession is not necessarily bad news for leveraged buyouts.
‘We’re quite optimistic about our new prospects,’ said Mr Schwarzman, whose company is the world’s largest private-equity investor.
Mr Schwarzman said that the biggest profits for private-equity investors have come during the worst economic times, pointing to recessions in the early 1990s and 2001, when investors earned average annual returns of around 30 per cent. The global credit crisis that took hold almost 18 months ago has stalled large-scale acquisitions, forcing Blackstone to focus on smaller deals that require less debt.
‘When you get all that debt, the prices go up,’ Mr Schwarzman said. ‘When the prices are low, you can make a tremendous amount of money.’
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