2009 Top 40 Money Managers Report: ABCs of Crisis

With 40% wiped away by the global market meltdown in just 12 months, this report sees a major game change underway—not just in the Canadian money management industry, but all over the world. Some say an entirely new vocabulary is being crafted as clients jump from alpha obsession to a new emphasis on capital preservation, risk management and liability matching. The Top 40 managers tell us how they think the industry is set to change in the future and how today’s events are transforming the way they do business.

Unprecedented Destruction
It’s not just the assets that have been pummelled by the global financial crisis; the whole business has been shaken to its core. “It’s been eviscerated,” says Michael Woolfolk, senior currency strategist with BNY/Mellon Asset Management Ltd.

(No. 11 on the Top 40 ranking) in New York. “This has been a once-in-a-generation episode” that has led to “the most challenging investment environment we’ve seen in 80 years. The wealth destruction has been unprecedented. I would say it has been profound.” Woolfolk lists a host of major impacts, from the elimination of half of the hedge fund industry to markets that are down 50% from their highs. And it’s not over yet. Most managers believe there’s a long way to go before the financial sector can begin to recover.

Bill Chinery, chief executive officer of Barclays Global Investors Canada (No. 1), says the market challenges have hit clients hard. “They have been decimated,” he says. Their liabilities have increased and their assets have gone down—“they have reined in their horns and now want to move into new areas offering more transparency and less leverage. They are going back to the future—back in time 10 years to when they did long-only.”

John Akkerman, senior managing director with AllianceBernstein Institutional Investments (No. 9) in New York, agrees that clients have their hands full. Indeed, he says many of the assumptions that provide the foundation for both defined benefit and defined contribution plan structures are under review as plan sponsors grapple with rapidly growing underfunding and solvency issues. “This has really sent a shock wave through the industry,” he says.

The pain being felt by plan sponsors has been compounded by serious economic issues. “Their anxiety is compounded by the human impact all of us have seen—downsizing in the economy, et cetera,” as they deal with job losses at the companies they work for.

Even that old standard—the 60/40 equity/fixed income split—could be on its way out, according to Mark Doyle, vice-president with J.P. Morgan Asset Management (No. 16) in Toronto. “Clients are questioning the appropriate asset allocation mix and whether having 60% to 65% in public equities makes sense in one of the worst economic environments in decades.” Funding deficits mean that plan sponsors are going to be seeking real solutions to their problems—and managers will need to communicate clearly and answer tough questions from clients who want more transparency “to help them weigh the risk/reward trade-off of their exposures,” he says.

Jim MacDonald, senior vice-president with Addenda Capital Inc. (No. 7) in Montreal (which merged with The Co-operators Group Ltd. in 2008) has also had to answer questions from anxious clients. “We don’t always have the answers, and when there was panic in the market, it was hard to come up with good answers. But you have to tell them what you know, be positive and help them look forward,” he says.

As jittery clients focus on losses and market risks, managers have had to shift how they do business. Not only are they having to improve the way they communicate, they have had to completely reframe how they interact with clients, as plan sponsors shun derivatives and aim to stem losses from their portfolios. “We did not do a great job for our clients last year, and we did not perform as well as we should have,” says Akkerman. “We need to do better.”