Friday, November 23, 2007

Small Funds are Growing 1997


A study by Strategic Insight, a fund consultancy in New York, found that small- to medium-sized American management companies have grown their assets much faster during the 1990s bull market than the industry's behemoths have done.

The assets of the 18 managers that had $10 billion or more under management in December 1990 rose by 273 percent through January, slightly more than the growth in the American stock market. Smaller managers — those with assets in 1990 between $500 million and $3 billion — did much better, increasing their size by 399 percent.

An obituary for smaller funds had been written in October 1995 by researchers at Goldman, Sachs & Co. who said that "there are too many management companies relative to the flow of available new assets" and that large companies had the best hope of thriving in that environment.

The Strategic Insight study indicates that it is not working that way. "Manager size or parent-company resources do not consistently correlate with net inflows and asset growth," a summary says. "So far, the entrepreneurial and creative nature of the business has allowed many small companies to be very successful."

One creative marketing strategy is the so-called fund supermarket, such as the Mutual Fund Marketplace operated by Charles Schwab & Co., which allows account holders to buy funds from a number of managers over the phone and without sales charges. Some of the fastest-growing fund families on the Strategic Insight list of small managers participate in the Schwab program.

Small companies are benefiting from another trend in the business: outsourcing. Diana Mackay, managing director in Europe for Lipper Analytical Services, said a big U.S. fund manager will often look to another company to run a portion of its assets. Because of this, she said, management talent is not concentrated at a few companies. In Europe, by contrast, the attitude among portfolio managers is that you either work at a big bank or you work nowhere. "It has a lot to do with the old approach in the industry," she said, "the need for banks to offer all products and services."

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