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Pesky start-ups, higher costs and weaker markets have left bulked-up money managers searching for growth opportunities.

By David Lanchner
November 2000
Institutional Investor Magazine

For the complete Euro 100 ranking results, please go to the rankings section of this site.

So much for the logic of consolidation.

After several years of poor performance in its value-oriented portfolios of stocks and bonds, Swiss money manager UBS saw new money inflows fall and profits decline by 26 percent in 1999. Europe's largest investment firm has also had to contend with wrenching change as it tries to bring London-based Phillips & Drew and Chicago-based Brinson Partners under its own brand. Tony Dye, who headed Phillips & Drew, and Gary Brinson, founder and head of Chicago-based Brinson Partners, resigned under pressure in March, leaving chief executive Peter Wuffli to integrate the UBS subsidiaries.

"We suffered from some short-term performance issues last year," says Wuffli. "Even though our value portfolios are now doing well, we decided to strengthen our global research platform and expand the range of our investment products. Now we can offer clients nearly any kind of portfolio they want."

Like many of its global counterparts, UBS finds itself in a bind. As it spends freely to create a unified brand name and deliver the products and services demanded by a diverse, worldwide customer base, the money management firm is also competing in a slower-growth, fee-conscious marketplace. And a new generation of index funds, private equity investors and hedge players are all vying to claim their own piece of turf. Then there is talent. Keeping star portfolio managers and their teams together is increasingly expensive as opportunities open at rival firms and start-ups. In the background, the world's longest-
running bull market is quickly losing speed and threatening to turn the financial services marketplace into a war of attrition.

"Everyone wants a piece of the European market, largely because of future prospects for the introduction of pension funds," notes Stephen Wilshire, head of European research at pension consulting firm Frank Russell Co. in London. "But with the exception of the U.K., Holland and Switzerland, there are still no real pension funds to speak of in Europe. The pie is quite small, and the appetite of fund managers is quite large. Until these markets start diverting assets into funded pension schemes, competition will be a continuous downward force on fees."

The lack of major new growth opportunities is starting to manifest itself in the Euro 100, Institutional Investor's ranking of the largest money managers. While the minimum amount of assets needed to break into Europe's top five rose sharply last year, to E649 billion ($545 billion), the growth rate isn't quite what it seems. (II has, for the first time, used the euro, rather than the U.S. dollar, as the basis for the ranking. Because of the decline in the euro and ongoing shifts in the currency makeup of managers' portfolios, only generalized year-to-year comparisons here and elsewhere in this article are possible.) Without fifth-ranked Deutsche Asset Management's absorption of Bankers Trust Corp.'s investment unit, the minimum to join this elite group last year would have risen much more modestly. Aside from UBS (E1.09 trillion) at the No. 1 spot and Deutsche Bank in fifth (E649 billion), the top tier includes Axa Group (E781 billion), Barclays Global Investors (E779 billion) and Credit Suisse Group (E735 billion) in the second, third and fourth spots, respectively.