U.S. Money Managers Win Big

Sebastien Callebaut -

US Giants Secure Major Pension Mandates

The global asset management industry is undergoing a profound shift as US-based financial giants dominate the UK and European markets. Historically strong European and British institutions are increasingly being outpaced, as large American firms leverage their scale, technological edge, and diverse product offerings to capture significant market share.

In a striking sign of this transformation, some of Britain’s largest pension funds are turning to American asset managers. For example:

  • British Airways entrusted New York-based BlackRock with managing its £21.5bn pension assets in 2021.
  • BAE Systems awarded Goldman Sachs a £23bn mandate.
  • Shell appointed BlackRock this year to oversee €26bn in pension assets.

This outsourcing of chief investment officer (OCIO) services reflects the growing trust in US firms to manage complex, large-scale investments.

Why Are US Asset Managers Winning?

The success of US asset managers in Europe can be attributed to several factors:

  1. Economies of Scale: The largest US firms, such as BlackRock, JPMorgan Chase, and Goldman Sachs, spread costs for technology, operations, and compliance across their immense asset base.
  2. Diverse Product Offerings: US firms provide a combination of services, including:
    • Low-cost tracking funds and exchange-traded funds (ETFs).
    • High-fee alternatives such as private equity, private credit, and infrastructure.
  3. Technological Edge: Platforms like BlackRock’s Aladdin software, which generated $1.5bn in revenue last year, provide advanced risk management solutions.

According to Rachel Lord, head of BlackRock International, running an asset manager has become increasingly expensive, which necessitates a large-scale platform capable of offering active, index, technology, and private markets solutions.

Challenges for UK and European Asset Managers

Over the past decade, assets managed by US groups in the UK and Europe have more than doubled, rising from $2.1tn in 2014 to $4.5tn by late 2023, according to ISS Market Intelligence. Furthermore, US managers now oversee 59% of UK tracker funds and they control three-quarters of the active ETF market, a rapidly growing segment. While US firms thrive, UK and European asset managers face structural challenges:

  • Decline in Actively Managed Domestic Funds: Once the core of UK managers’ businesses, actively managed domestic equity funds are shrinking.
  • Shift Toward Passive Investing: Investors are opting for low-cost index funds, which squeezes fees and reduces profits.
  • Brexit Fallout: UK managers lost their EU passporting privileges, cutting access to European clients and undermining their competitive edge.

According to a top US executive, Brexit removed UK asset managers from being European, leaving them with no significant competitive advantage against American firms.

US Momentum Fueled by Domestic Strength

US firms benefit from strong domestic growth, enabling them to expand internationally as North American assets under management grew 16% year-on-year in 2023, compared to 8% in Europe and just 2% in the UK. Furthermore, rising US markets and a strong dollar support their global expansion. This trend has been further accelerated by political factors. The anticipated return of Donald Trump to the White House is seen as a catalyst for deregulation, tax cuts, and increased dealmaking, further energizing US firms.

In response to US dominance, European asset managers are seeking scale through mergers:

  • The UBS-Credit Suisse merger in 2023 created a $5.7tn asset management giant.
  • Axa and BNP Paribas are in talks to combine their asset management businesses, aiming to manage €1.5tn.
  • However, consolidations are often difficult to execute. Talks between Allianz and Amundi, for instance, were paused due to structural disagreements.

While London remains Europe’s financial hub, the winners of this transformation are increasingly global firms—and predominantly American.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Jan Folwarczny / Unsplash.