New Strategic Insight Study: STATE OF THE GLOBAL
FUND INDUSTRY – 2011 REVIEW, 2012 OUTLOOK

State of the Industry - Vol. 2

New York – March 7, 2012 – The second volume of Strategic Insight’s State of the Industry report provides a global review of 2011 and an outlook for 2012, and also focuses on winning strategies, leading firms and standout campaigns that enabled blockbuster firms to sustain cash flows in the second half of 2011, at a time when the industry globally was impacted by the next act of the European debt crisis, market volatility (in August), regulatory uncertainty, limited net retail contributions and macro-political stumbling blocks.  Daniel Enskat, Head of Global Consulting for Strategic Insight and author of the report, on the major themes and data points discussed in the study:

• “Flow compression for the global fund industry in 2011: Globally, net cash contributions to long-term mutual funds totaled $200 billion for 2011, down 80% from $1 trillion in both 2010 and 2009.  Net inflows in the US, Asia, and Latin America stood in contrast to outflows from Europe.

• Blockbuster phenomenon: the top 1% of products take in $1 trillion in 2011: Despite the aggregate industry flow compression, the top 1% of products was able to pull in $1 trillion in new money last year, with an average of $1.5 billion in cash flows per fund.  The 1% within the 1% were the ultimate winners, with $11.5 billion in new cash per fund.

• The 1% come in all shapes and sizes: blockbusters included small and large firms, different global regions and a variety of investment themes.  The common denominator for all of them was the right mix of investment performance, client service, a strong brand and organizational stability.

• An equity centric global fund industry refocuses in 2012: While fixed income has dominated flow statistics in recent years, the fund industry from an asset perspective evolves around equities:  Equity/mixed funds account for 51% of all global fund assets.  January 2012 flows to equities are a promising start.

• The industry is moving towards investment solutions and ‘bridges’: Themes and simplicity still dominate the product landscape, but institutions and distributors around the world are gradually shifting towards ‘bridge’ products.  Globally, investment solutions overall are approaching $4 trillion in assets, with $110 billion in 2011 cash flows.  The top three 2011 cash flow funds were all US-based global asset allocation products (PIMCO All Asset, First Eagle Global, and Permanent Portfolio), with each over $5 billion in cash flows.

• Alternatives (again) on the rise: After a move back-to-basics post 2008, alternative and absolute return products have since accelerated exponentially, now approaching 7.5% of global fund assets.  In 2011 alternative funds combined gathered $100 billion in net new money.  Top funds were: Standard Life Global Absolute Return Strategies ($3.7 billion), Newton Real Return ($3.5 billion), Van Eck Market Vector Gold Miners ETF & ZKB Gold ETF ($3 billion each), iShares Gold Trust ($2.8 billion).

• Three meta-trends – future asset class/investment category demand, regional flow potential (developed vs. emerging) and concentration of leadership via selected blockbuster products – will be part of the conceptual framework for fund managers as they are mapping out brand positioning and growth strategies for the coming years from a flow perspective.

• The best-selling investment categories in 2011 were global bond ($63 billion), US short-term bond funds ($61 billion), international/global equities ($57 billion), US corporate fixed income ($39 billion), and real estate ($30 billion).

• Multi-convergence in the asset management industry:  We see blurring lines of demarcation between traditional & alternative investment approaches; West & East and East & West; retail & institutional distribution, and a more complex global and local regulatory framework.  In combination, these metatrends represent an inflection point for the industry from an era of self-directed performance driven investing seen as fun, to an era of advisory-based investing around managing complexity and volatility while preserving capital and providing stability and income.

• Guidance, advice and protection for 2012:  Our proprietary surveys show that now more than ever investors seek guidance, advice and protection, with leading concerns in 2012 around portfolio diversification, volatility, income and inflation.  For 2012, we see a recovery of long-term flows; a gradual pick up of equity demand, a comeback of retail investors; continued opportunities for independent asset managers; and sustained flows to alternatives and investment solution; all of which concentrated to the 1%.”

For more information or to get a copy of the report, please contact Brittany Keppel (bkeppel@sionline.com)

Bryan Liu, Senior Research Analyst (HK)

Lise Carpenter, Senior Research Analyst (HK)

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Strategic Insight, founded in 1986, is a leading research firm for the mutual fund and wealth management industry, providing clients with in-depth studies, consultation, and electronic decision support systems. Strategic Insight assists more than 250 firms worldwide, including the largest U.S. mutual fund companies. Visit us at www.SIonline.com. SI’s parent, Asset International, is a privately held provider of information and technology to global pension funds, asset managers, financial advisers, banking service providers, and other financial institutions in the private and public sector. The company has offices in New York, Hong Kong, London, Melbourne and Stamford, CT. For additional information, visit www.AssetInternational.com.