Areas of development

Review of institutional investors’ segment of the asset management market, the first half of 2008

Prepared by:
Pavel Mitrophanov,
investment rating department, head

Pavel Samiev,
department of ratings of financial institutions, director

Review methodology

The review of institutional investors’ segment was prepared by the Expert RA rating agency as a part of quarterly monitoring of the market of collective investments and asset management. We also used data received from management companies (MC). 120 MC were involved in answering our questions.

Institutional growth

The asset management market stopped growing in the first half of 2008¹, but segments of insurance companies’ (IC) reserves and accumulations of NSPF managed to show positive dynamics. Insurers and pension funds cannot be efficient without professional asset management and bring their funds to MC even in instability periods at stock markets. According to Expert RA, by the end of the first half of 2008 insurance companies’ reserves in management amounted to 30 bln rubles². The growth since the beginning of the year was 3% (about 1 bln rubles). By June 30, 2008 the NSPF pension reserves reached 465 bln rubles³, the growth since the beginning of the year was 8% (about 35 bln rubles). Within the six months of 2008 the MC managed pension accumulations increased by 1.6 times - from 26 bln rubles to 42 bln rubles⁴.

Insurance breakthrough

Institutionally, the IC asset management market looks pretty mature. By the end of the first half of 2008 the ratio of IC reserves in MC management to total insurance reserves of Russian IC (300 bln rubles) was 10%. Since July 2007 the ratio showed fourfold increased: our review “Investments of insurers – 2007” assessed the level of asset management penetration to the insurance market as mere 2.5% of aggregated assets by mid-2007. Insurers seem to be more active in the financial management issues – MC may expect further inflow of “insurance” money at least before a legislative limit of 20% from total reserves is achieved.

Top 15

The IC reserves’ asset management market is highly concentrated. The 15 largest MC (specializing in the area) cover 97% of the whole segment assets. The IC reserves’ asset management market is quite consistent. The top-15 list remained practically unchanged for the six months, excepting certain changes inside the ranking. For instance, MC Capital moved one line down with assets in management reduced by 254 mln rubles down to 924 mln rubles, and its place was taken by MC Uralsib with 7% increase up to 1.15 bln rubles.

Companies with the largest increase of IC reserves’ in management: Alliance-Rosno Asset Management (+561 mln rubles within six months of 2008, 5%), Ingosstrakh-Investments (+ 385 mln rubles, 12%), Finance (+168 mln rubles, 7%). Next to Capital, assets in management went down in Alfa-Capital (-157 mln rubles, 10%), Invest (-279 mln rubles, 37%), Leader (-68 mln rubles, 1%).

Lucrative place

Some of the market leaders revealed to us the IC reserves’ management results within six months and within the year between June 2007-2008. Management results notably differ. Depending on the investment strategy, MC showed in the first half of 2008 results from -17% to +9.5% a year – conservative bond strategies or mixed bond-based were mostly successful.

June 2007-2008 period showed more positive results: minimum minus 4%, maximum plus 32%.

Table 1. IC reserves’ asset management leaders

NSPF asset management: more competitive, more active

Competitive environment in the first half of 2008 improved: the 15 largest MC’ share in aggregated assets declined from 87% to 83%.

The NSPF asset management market has been growing turbulently – the largest players undergo dynamic changes. Four out of 15 leaders made gigantic leaps. These are Region (the first half of 2008, growth 6.7 times to 617 mln rubles), Trinfico (growth 5.5 times to 3.98 bln rubles), Ingosstrakh-Investments (growth 5 times to 1.5 bln rubles), and MC Rosbank group (growth 3.4 times to 3 bln rubles). Absolute asset growth: Capital (1.2 bln rubles increment to reach 7.9 bln rubles by the end of the first half of 2008), Alfa-Capital (+890 mln rubles), Pension Saving Company (+764 mln rubles).

Conservative approach to NSPF asset management played into MC hand: despite the stock market decline in the first half of 2008 bond investments allowed MC showing excellent results for NSPF comparing with, for instance, mutual investment funds’ asset management.

Most “institutional”

We took stock of MC institutionality index (II). II implies an aggregated share of IC and NSPF in the structure of total assets in management; we took into account only MC operating both with pension funds and insurance companies – the both main markets for institutional investors.

¹Next Expert RA quarterly asset management market review “At the level of resistance” will provide you with more details.

²Expert RA assessment of the asset management market in the first half of 2008. IC reserves in management of the monitoring participants increased by 29 bln rubles and reached about 96% of the whole segment assets.

³NSPF pension reserves in management (Expert RA monitoring) increased by 451 bln rubles and reached 97% of the whole segment assets.

⁴NSPF accumulations (Expert RA monitoring) exceeded 41 bln rubles and reached 98% of the whole segment assets.