Caisse Top Profit

INVESTMENTS

Manager Makeover The money management ininstitutional and retail product The money management industry dustry is undergoing a masdevelopment, many money is changing fast. What will the new sive change. Just how differmanagers will be shifting their ent will managers look in the focus in order to compete effecface of the industry look like? future? A report last year by tively in 2010. And that means McKinsey & Company called adopting a whole new look. The Asset Management IndusBy Caroline Cakebread try in 2010 found that the Snapshot 2006 money manager landscape will Let’s start by looking at the see the biggest players in the innumbers. Total assets under dustry earning 30% of management among our Top 40 their revenue from prodmoney managers rose 15% to $734.4 ucts they don’t even offer billion in 2006. While that’s a steep today. That’s not hard to jump overall, big gains on the part of a few believe when one considers players really stood out on our list, with the changes that are shapsome new firms breaking into the top spots. ing the money manageAllianceBernstein broke into the top 10 for ment business in Canada the first time, moving to eighth place from such as the elimination of 11th in 2005. The leg up came from a whopthe foreign property rule ping 55.3% gain in assets under management, and the increase of alternaup to $25.6 billion from $16.4 billion in 2005. tive investments. That’s the firm’s second major gain in a row, folTo better envision this new lowing a 61.9% jump between 2004 and 2005. money manager, benefits canaState Street Global Advisors moved up to fifth da asked some of this year’s Top 40 place from 10th in 2005, enjoying a 16.5% inmoney managers what they think their crease in assets under management, bringing business will look like in a few years. From inthe firm’s total to $32.2 billion. TD Asset Mancreased alpha to the blurring lines between agement Group inched up into third place

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from fourth with an impressive 19.7% gain, taking its total assets under management up to $37.3 billion. All three of the fastest growing money managers managed to more than double their pension assets. JP Morgan Asset Management topped the list with a 59.5% jump to $12.8 billion, Fidelity Investments Canada held on to second place with a 57.2% jump to $8.1 billion, while AllianceBernstein was still third in terms of asset growth. Managers say the new business is coming from demand for global investments. Plan sponsors are also seeking products that help them better manage their risk—that means fixed income, absolute return strategies, portable alpha and liability driven investing (LDI). For example, Fidelity, the second biggest gainer on the list, credits its growth to demand for global products and fixed income, which the firm says relates to LDI. According to Colin Ripsman, Fidelity’s vice-president, retirement services, in Toronto, “the growth in fixed income man-

dates reflects an increased interest by Canadian defined benefit (DB) plan sponsors in managing risks through LDI. As allocations to fixed income in many DB plans increase, plan sponsors are looking for higher value-added fixed income products.” The story was similar at State Street Global Advisors, where new business came from products related to risk management and an appetite for global assets. “One of the changes we’ve seen is the greater amount of global assets people are putting into their allocations,” notes Carl Bang, the firm’s president in Montreal. “Investors are opening their scope.” New products and strategies such as 130-30 (130 long, 30 short), absolute return and portable alpha are also in great demand as plan sponsors look for a more efficient return stream and better risk control. “When you think of liability driven investing,” explains Bang, “the whole investment framework is changing from just looking at asset allocation to tying it to a liability.”

What sponsors want

Terri Troy, chief executive officer, HRM Pension Plan in Halifax, is looking for managers who offer strong risk-adjusted performance, net of fees. Troy says that the focus on risk-adjusted returns means that managers “are going to have to be strong risk managers as opposed to just asset managers.” Indeed, risk management is also top of mind for plan sponsor Gerry Wahl, assistant treasurer with Teck Cominco in Vancouver. “As we move toward better risk management and budgeting, the relationship with all our fund managers is changing,” says Wahl. Specifically, as liability matching becomes more important for plan sponsors seeking to control risk at the fund level, fixed income managers will take on a more critical role in managing overall portfolio risk. All this means a much closer working relationship between managers and plan sponsors, says Wahl. Managers will also need to deliver customized solutions. Peter Clarke, managing director, UBS Global Asset

Highest asset growth The Caisse retained its top spot with growth, in dollar terms, of more than $22 billion. In percentage terms, JP Morgan is a newcomer to the list with 59.5% growth.

Fastest Growing Rank Company Pension Assets 2006 Pension Assets 2005 1 Caisse de dépôt et placement du Quebec $172,808.0 $150,162.0 2 AllianceBernstein $25,558.0 $16,455.0 3 TD Asset Management Group $37,267.0 $31,133.0 4 Barclays Global Investors Canada Limited $50,687.8 $45,637.3 5 JPMorgan Asset Management $12,754.0 $7,996.0 6 State Street Global Advisors Ltd. $32,232.9 $27,660.5 7 Mellon Asset Management $13,672.1 $10,079.7 8 Sprucegrove Investment Management Ltd. $11,437.4 $8,013.5 9 Wellington Management Company, LLP $11,180.0 $7,808.0 10 Letko, Brosseau & Associates Inc. $13,192.0 $9,966.0

($) Millions $ Growth $22,646.0 $9,103.0 $6,134.0 $5,050.5 $4,758.0 $4,572.4 $3,592.4 $3,423.9 $3,372.0 $3,226.0

Fastest Growing (%) Rank Company Pension Assets 2006 Pension Assets 2005 1 JPMorgan Asset Management $12,754.0 $7,996.0 2 Fidelity Investments Canada Ltd. $8,145.0 $5,182.0 3 AllianceBernstein $25,558.0 $16,455.0 4 Wellington Management Company, LLP $11,180.0 $7,808.0 5 Sprucegrove Investment Management Ltd. $11,437.4 $8,013.5 6 Mellon Asset Management $13,672.1 $10,079.7 7 Letko, Brosseau & Associates Inc. $13,192.0 $9,966.0 8 Leith Wheeler Investment Counsel Ltd. $6,500.0 $5,128.0 9 Standard Life Investments Inc. $9,059.0 $7,161.6 10 Foyston, Gordon & Payne Inc. $6,546.0 $5,200.0

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% Growth 59.5% 57.2% 55.3% 43.2% 42.7% 35.6% 32.4% 26.8% 26.5% 25.9%

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manage 1 7 13

TOP 40 Mone

As of December 31, 2006 ($ millions)

Caisse de dépôt et placement du Quebec

McLean Budden Ltd.

Beutel Goodman & Company Ltd.

Rank 2005: 6

Rank 2005: 1 Total Pension Assets: $172,808.0 Total Pension Assets 2005: $150,162.0 ▲ 15.1% Total Assets: $218,768

Total Pension Assets 2006: $29,228.0 Total Pension Assets 2005: $26,977.0 ▲ 8.3% Total Assets: $41,916.0

Rank 2005: 13 Total Pension Assets 2006: $13,600.0 Total Pension Assets 2005: $11,879.0 ▲ 14.5% Total Assets: $15,360

2

8

14

Barclays Global Investors Canada Limited

AllianceBernstein Rank 2005: 11

Rank 2005: 2 Total Pension Assets 2006: $50,687.8 Total Pension Assets 2005: $45, 637.3 ▲ 11.1% Total Assets: $71,231.2

Total Pension Assets 2006: $25,558.0 Total Pension Assets 2005: $16,455.0 ▲ 55.3% Total Assets: $39,599.0

3

9

TD Asset Management Group

Rank 2005: 4 Total Pension Assets 2006: $37,267.0 Total Pension Assets 2005: $31,133.0 ▲ 19.7% Total Assets: $135,743.0

4

Phillips, Hager & North Investment Management Ltd.

Rank 2005: 3 Total Pension Assets 2006: $35,813.9 Total Pension Assets 2005: $33,955.4 ▲ 5.5% Total Assets: $65,310.9

5

State Street Global Advisors Ltd.

Rank 2005: 10 Total Pension Assets 2006: $32,232.8 Total Pension Assets 2005: $27,660.5 ▲ 16.5% Total Assets: $38,759.8

6

Jarislowsky, Fraser Limited

Rank 2005: 5 Total Pension Assets 2006: $30,234.0 Total Pension Assets 2005: $28,571.0 ▲ 5.8% Total Assets: $55,249.0

Greystone Managed Investments Inc.

Rank 2005: 7 Total Pension Assets 2006: $21,180.6 Total Pension Assets 2005: $18,425.4 ▲ 15% Total Assets: $28,955.6

10

Addenda Capital Inc.

Rank 2005: 9 Total Pension Assets 2006: $18,202.0 Total Pension Assets 2005: $16,928.0 ▲ 7.5% Total Assets: $27,719.0

11

Connor, Clark & Lunn Financial Group

Rank 2005: 8 Total Pension Assets 2006: $17,897.8 Total Pension Assets 2005: $17,940.8 ▼ 0.2% Total Assets: $32,456.4

12

Mellon Asset Management

Rank 2005: 17 Total Pension Assets 2006: $13,672.1 Total Pension Assets 2005: $10,079.7 ▲ 35.6% Total Assets: $15,343.6

”one of the changes we’ve seen is the greater amount of global assets people are putting into their allocations.”

Bimcor Inc. Rank 2005: 12

Total Pension Assets 2006: $13,249.1 Total Pension Assets 2005: $12,499.2 ▲ 6% Total Assets: $13,249.1

15

Letko, Brosseau & Associates Inc.

Rank 2005: 18 Total Pension Assets 2006: $13,192.0 Total Pension Assets 2005: $9,966.0 ▲ 32.4% Total Assets: $21,907.0

16

JPMorgan Asset Management

Rank 2005: 25 Total Pension Assets 2006: $12,754.0 Total Pension Assets 2005: $7,996.0 ▲ 59.5% Total Assets: $14,731.0

17

CIBC Asset Management

Rank 2005: 15 Total Pension Assets 2006: $12,607.3 Total Pension Assets 2005: $10,745.3 ▲ 17.3% Total Assets: $61,950.0

18

UBS Global Asset Management (Canada)

Rank 2005: 14 Total Pension Assets 2006: $12,435.1 Total Pension Assets 2005: $11,723.0 ▲ 6.1% Total Assets: $24,281.2

19

Franklin Templeton Institutional

Rank 2005: 16 Total Pension Assets 2006: $11,459.0 Total Pension Assets 2005: $10,162.0 ▲ 12.8% Total Assets: $20,135.0

— Carl Bang, president, state Street global advisors

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ers 20 Sprucegrove Investment Management Ltd.

Rank 2005: 24 Total Pension Assets 2006: $11,437.4 Total Pension Assets 2005: $8,013.5 ▲ 42.7% Total Assets: $13,774.2

21

Wellington Management Company, LLP

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Fidelity Investments Canada Ltd.

Rank 2005: 35 Total Pension Assets 2006: $8,145.0 Total Pension Assets 2005: $5,182.0 ▲ 57.2% Total Assets: $47,315.0

Rank 2005: 23 Total Pension Assets 2006: $6,331.5 Total Pension Assets 2005: $5,651.3 ▲ 12% Total Assets: $15,927.0

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Natcan Investment Management

29

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Fiera YMG Capital Inc.2

22

30

23

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Bentall Capital Rank 2005: 27

Total Pension Assets 2006: $9,476.0 Total Pension Assets 2005: $7,935.0 ▲ 19.4% Total Assets: $14,507.0

24

Legg Mason Canada Inc.

Rank 2005: 20 Total Pension Assets 2006: $9,406.0 Total Pension Assets 2005: $9,742.0 ▼ 3.4% Total Assets: $14,023.0

25

Standard Life Investments Inc.1

Rank 2005: 30 Total Pension Assets 2006: $9,059.0 Total Pension Assets 2005: $7,161.6 ▲ 26.5% Total Assets: $26,309.4

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New Brunswick Investment Management Corp.

Rank 2005: 28 Total Pension Assets 2006: $8,550.0 Total Pension Assets 2005: $7,825.0 ▲ 9.3% Total Assets: $8,550.0

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Rank 2005: 31

Total Pension Assets 2006: $5,310.0 Total Pension Assets 2005: $5,589.0 ▼ 5% Total Assets: $5,756.0

Rank 2005: N/A Total Pension Assets 2006: $8,055.9 Total Pension Assets 2005: $N/A ▲▼ N/A Total Assets: $20,043.9

Rank 2005: 19 Total Pension Assets 2006: $11,041.8 Total Pension Assets 2005: $9,843.6 ▲ 12.2% Total Assets: $12,295.0

AMI Partners Inc.

Rank 2005: 21 Total Pension Assets 2006: $8,071.0 Total Pension Assets 2005: $8,853.0 ▼ 8.8% Total Assets: $21,595.0

Rank 2005: 29 Total Pension Assets 2006: $11,180.0 Total Pension Assets 2005: $7,808.0 ▲ 43.2% Total Assets: $13,579.0

Capital Guardian Trust Co.

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GWL Investment Management Ltd.3, 4

Northwater Capital Management Inc.

Rank 2005: 26 Total Pension Assets 2006: $7,716.0 Total Pension Assets 2005: $7,980.0 ▼ 3.3% Total Assets: $8,453.0

Guardian Capital LP Rank 2005: 22

Total Pension Assets 2006: $7,712.0 Total Pension Assets 2005: $8,662.0 ▼ 11% Total Assets: $16,431.0

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Foyston, Gordon & Payne Inc.

Rank 2005: 32 Total Pension Assets 2006: $6,546.0 Total Pension Assets 2005: $5,200.0 ▲ 25.9% Total Assets: $13,260.0

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Leith Wheeler Investment Counsel Ltd. 3

Rank 2005: 39 Total Pension Assets 2006: $6,500.0 Total Pension Assets 2005: $5,128.0 ▲ 26.8% Total Assets: $7,656.0

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Brandes Investment Partners, L.P.

Rank 2005: 34 Total Pension Assets 2006: $6,370.0 Total Pension Assets 2005: $5,061.0 ▲ 25.9% Total Assets: $16,997.0

AIM Trimark Investments5

Rank 2005: 36 Total Pension Assets 2006: $5,164.0 Total Pension Assets 2005: $4,759.0 ▲ 8.5% Total Assets: $50,122.0

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Sceptre Investment Counsel Limited

Rank 2005: 38 Total Pension Assets 2006: $5,143.2 Total Pension Assets 2005: $4,274.3 ▲ 20.3% Total Assets: $8,558.3

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MFC Global Investment Management

Rank 2005: 30 Total Pension Assets 2006: $4,645.0 Total Pension Assets 2005: $4,727.0 ▼ 1.7% Total Assets: $96,887.0

40

Morguard Investments Limited

Rank 2005: N/A Total Pension Assets 2006: $4,451.5 Total Pension Assets 2005: $3,560.2 ▲ 25% Total Assets: $6,549.0

2006 Top 40 Total: 2005 Top 40 Total: % Difference:

$734,388.8 $631,851.1 15.0%*

* figure does not include Fiera YMG

Industry’s total pension assets:

$1.07 trillion Notes: 1. Assets include pooled and segregated private equity assets managed by Standard Life Investments (Private Equity) Ltd. on behalf of Canadian pension plans and other institutions 2. Fiera merged with YMG in Feb. 2006 3. Restated 2005 pension figure 4. One non-pooled pension account of over $2.7 billion with GWL Realty Advisors, Inc. not included in total 5. Includes Invesco assets

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Management (Canada) in Toronto (ranking: 18), says Canadian managers must shift to a consultative role with plan sponsors. “Asset managers can no longer just come in and present strong performance in one asset class as the only thing they offer,” he explains. “You’re going to see managers becoming more consultative with their clients, doing asset liability work and looking for solutions to meet clients’ specific needs.” Partnerships and better products are the name of the game, as managers work to keep up with industry trends. Barbara Palk, senior vice-president with TD Asset Management Group in Toronto, agrees that plan sponsors want their managers to go beyond traditional portfolio asset management. “Money managers traditionally believed that if they had the best numbers and ranking that this would translate into the best business model,” she explains. In the future, that won’t be the case. “You have to have the right business model to attract people,” she says. Joe DiMassimo senior vice-president, sales and service, with Addenda Capital in Toronto (ranking: 10) agrees that

Five Hot New Looks in Money Management As plan sponsors ask for more, money managers are changing the way they do business, offering more products and facing their clients in a whole new way. What are the top trends for this year’s top 40 money managers?

1

Consultation Plan sponsors are looking for more than just performance—they want tailored solutions focused on their liabilities and risks. Says Peter Clarke: “You’re going to see managers becoming more consultative with their clients, doing asset liability work and looking for solutions to meet clients’

specific needs. You can’t just sell them one thing.”

2

Alpha beta separation Risk management is the new asset management— that means more and more separation of alpha and beta. Says Joe DiMassimmo: “The firms that are going to be at the top will be those that are manufacturing the products that are needed at the right areas in their client’s portfolio.”

3

New products Hot new products and strategies such as 130-30 (130 long, 30 short), absolute return and portable alpha are in

demand as plan sponsors look for a more efficient return stream and better risk control.

4

Global The buzzword is international managers need to bring the world to their clients. Says Malcolm Leitch: “Right now there are opportunities [outside Canada] to justify the risk. And they offer diversification benefits and higher potential returns than in Canada.”

5

DC looking more DB As the lines blur between DC and DB products, money managers will need to offer a little bit of both. Says Keith Walter: “We see more of the same investment intelligence that goes in the DB world going into the DC world.

performance-driven management is giving way to something far more complex than outperforming a benchmark—the quest for alpha and the separation of alpha and beta within a pension fund. “In five years’ time, performance will be a given and the big driver will be alpha and beta separation,” he says. New asset classes and approaches are also part of the new look plan sponsors are adopting going forward. From his perspective, Malcolm Leitch, chief operating officer with Bentall Capital in Vancouver (ranking: 23), says his firm is already eyeing global opportunities. As real estate moves into the mainstream, new growth to meet the increasing demand will likely come from abroad, says Leitch. “As additional pension funds look to put money into real estate, many will not be able to fill their mandates by staying in Canada, especially the big funds,” he explains. “Right now there are opportunities [outside Canada] to justify the risk. And they offer diversification benefits and higher potential returns than in Canada,” he says. Retail meets institutional

Managers will start looking at the retail and institutional sides of the asset management business. That is because the lines are blurring between these two traditionally separate areas of the business. While Gary Wing, global head of institutional account services, with AGF Fund, might not be with one of the top 40 firms, he is very aware of the sea change that is shaping his business. As many plan sponsors move away from the DB model toward more defined contribution (DC) offerings, product development is tipping into retail territory. “As the retail side and the pure institutional side of the business come together, it is changing the industry on a macro level,” says Wing. That means changes on the product development level: “I think product development is going to be a lot different,” Wing explains, noting that the merging of what he calls the “old-school institutional world” with the very different space of mutual fund sales will make for a key shift in the industry. Keith Walter, senior vice-president, sales and marketing, with MFC Global Investment Management in Toronto (ranking: 39), calls this trend the “DB-ing of the DC world.” “We see more of the same investment intelligence that goes in the DB world going into the DC world, with subtle differences.” MFC, like other DC providers, is putting a focus on building DC options that take the form of target date lifecycle funds— products that automatically adjust in tandem with an individual’s life situation. Kind of like “mini DB plans,” Walter says these products are shaping the industry. Despite the changes, plan sponsors are opting for a slow and steady approach to new products and innovations. “With the globalization of investment plans following the elimination of the foreign property rule, Canadian plan sponsors are starting to step into global markets two years on. But it’s going to take a little while to play out,” Walter believes. Slow or fast, one thing is clear—Canada’s top 40 money managers say that the changes are already taking hold. As we approach 2010, the top 40 list will reflect their efforts to keep pace with the needs of their plan sponsor clients as they tackle the challenges that lie ahead. BC Caroline Cakebread is the editor of Canadian Investment Review. [email protected]