In the land of giants

THE FIRM ANNOUNCED THE APPOINTMENT OF KEN MACKENZIE AS CHAIRMAN, EFFECTIVE SEPTEMBER 1

It certainly gives some perspective to see how huge many of the world’s largest asset managers have become. We tend to see the Public Investment Corp (PIC) as a colossus. And in emerging market terms that is true.

Its main client, the Government Employees Pension Fund, is one of the 12 largest retirement funds in the emerging world. But even at today’s relatively favourable rand exchange rate, the PIC manages about €150bn.

The 25th-largest asset manager in the world, Insight Investment Management, runs €613bn, about four times the size.

The largest fund manager in the world, Blackrock, has an office in SA and local investors can buy its index funds, as exchange traded funds or as more conventional mutual funds.

Blackrock has an interesting history. It was founded by entrepreneurs from the US West Coast, headed by Larry

Fink, as a fixed-interest house.

It made two transformative acquisitions in the years around the global financial crisis, first Merrill Lynch Investment Managers, which gave it a large equity book as well as a presence in the retail market, then Barclays Global Investments, best known for its ishares index range — and its assets ballooned.

Blackrock has a truly international footprint though, like the majority of its competitors, the bulk of its investment management is carried out in London and the US East Coast.

The No 2 manager, though there is a gap of more than a trillion euros, is Vanguard, based in the historic Valley Forge area in Pennsylvania, where George Washington’s army spent a freezing winter during the American Revolution. Vanguard grew up the hard way, without acquisitions. Under founder Jack Bogle it pioneered the first index fund. It was a tough sell when commission-based salesmen selling active “load” funds was the standard way to sell. Vanguard has remained until recently a predominantly American business, though it has a large footprint in Australia.

The third-largest fund manager, State Street Global Advisors, is also primarily an index manager, and a well-known provider of back-office services. It is not as colourful as Blackrock or Vanguard — in fact, it is positively monochrome — but I am sure that’s the way they want it to be.

It says something that Fidelity, once the largest fund manager in the world, is now half the size of Blackrock.

Fidelity was the house where Allan Gray learnt his craft after finishing his MBA at Harvard.

It is the essential celebrity fund manager shop, the most famous being Peter Lynch who ran Fidelity Magellan for more than a decade. Will investors still buy this type of fund in an age in which technology can do the same job a lot faster?

Franklin Templeton, another celebrity-focused manager, used to be in the top 10; it has now slipped to 23rd place. There are just a few managers from outside the US and UK on the list. Germany has Deutsche, of course, and Switzerland UBS. France has three contenders: Amundi, Natixis and Axa.

The American firms tend to run their international operations from London. Will this change after Brexit? Undoubtedly some of the back office and the nameplates will move to Dublin or Paris, but it will be hard to persuade the fund management team to move.

And some, such as Legal & General, have the bulk of their clients in the UK anyway.

The PIC seems like a colossus until you see the size of the global managers