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Rating:Fund Ownership Majority Could Shift to Institutional, Cerulli Suggests Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, July 28, 2009

Fund Ownership Majority Could Shift to Institutional, Cerulli Suggests

Reported by Meredith Mazzilli

A new report by Boston-based Cerulli Associates took a look at recent trends in the distribution of mutual fund ownership. According to the report, Quantitative Update: The State of Retail and Institutional Asset Management 2009, institutional ownership of mutual funds grew at a compound annualized rate of 8.1 percent between 2003 and 2008, compared to a 3.3 percent compound annualized rate for retail investors over the same period. The biggest segment percentage gain in the institutional space was seen in short-term mutual funds owned by funding corporations, which grew from $363 billion in 2003 to $900 billion in 2008, representing a nearly 148 percent increase over the five-year period.

The report suggests such growth rates indicate institutions could soon hold the majority of mutual fund shares, and describes the new mix between retail and institutional asset levels as a "vastly altered landscape." In fact, one scenario posited in the study projects that institutions may exceed retail investors in mutual fund ownership as soon as 2011. Institutions owned 47.4 percent of total mutual fund assets in 2008 -- a portion which represented roughly $4.26 trillion in assets. Fifty-six percent of long-term funds were held by retail investors, while 55.3 percent of short-term mutual funds were held by institutional investors.

The balance was more skewed for ETFs, of which 67.5 percent were held by retail investors.

"It's too early to tell, but the long-term trend is that the 401(k) fund contribution market is becoming a more prominent source of funds for mutual fund companies," Cerulli analyst Jake Hartnett told The MFWire. "If you look at mutual funds owned by funding corporations, a bulk of those are short-term funds. My suspicion is that this has slowed down a little, and when markets pick up, you'd expect to see that trend reverse.

"Retail investors did take a very heavy hit in 2008, and it really has changed the landscape of asset management," Hartnett continued. "Whether or not institutions are going to hold more assets is a small point compared to the amount of asset destruction because of such a heavy retail allocation to equities. Managers are going to want to look at how their own clients have been affected by this."

"Managers must revisit their assumptions to ensure that their business model remains viable," he added.

The data for the report was provided by Strategic Insight, the ICI and the Federal Reserve fund flows report. 

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