1) Empower Retirement to Acquire Prudential Financial Retirement Business
Empower | 7/21/2021
Because… This is Empower’s second multi-billion-dollar purchase during the year after closing the acquisition of MassMutual’s retirement plan business in January. After taking over Prudential’s full-service retirement business, Empower will increase its recordkeeping assets to about $1.4 trillion and the number of plan participants to 16.6 million. By comparison, Fidelity, the largest recordkeeper, boasts $2.5 trillion of assets and nearly 20 million participants. Empower has expressed an interest of exploring future acquisition opportunities. Another deal could make it the largest recordkeeper in terms of the number of plan participants it serves. According to a Captrust study, the universe of retirement plan recordkeepers has shrunk from 400 to approximately 150 over the past decade. We expect the consolidation to continue due to the need to achieve economies of scale, enhance service capabilities, expand target markets, and improve technology infrastructure. While this trend enables top players to strengthen their leadership positions, it will put mounting pressure on smaller recordkeepers due to the challenges to keep up with their larger counterparts.
2) Too Big to Fail? Twenty Funds Capture 87% of Investment Flows in a Month
Institutional Asset Manager | 7/16/2021
Because… High concentration is also a big issue in the U.S. ETF market. During the 12-month period ending June 2021, Vanguard and BlackRock contributed to 37% and 22% of the total inflows, respectively. The top three ETF providers accounted for two-thirds (66%) of industry sales. The top five represented 79% of the total. The percentage rose to 91% when we included the top 10 best-selling ETF sponsors. This means all the other 177 issuers generated less than 10% of the net flows. Sales concentration is even more noticeable in the passively managed ETF arena. The top three accounted for a combined 74% of passive ETF flows over the past year, with 95% of sales in the top 10. As more firms are making their first foray into the ETF industry, the space will become more crowded. However, small ETF issuers will have a tough time to compete with their larger rivals because of their lack of name recognition and limited marketing and distribution resources.
3) Northern Trust Asset Management Launches Quality Low Volatility Low Carbon World Strategy
Business Wire | 7/13/2021
Because… A growing number of asset managers are introducing environmentally friendly funds. Based on Morningstar classification, environmentally oriented ETFs had assets of $22.5 billion as of June 2021, up from $2.6 billion at year-end 2018. This group of funds attracted $6.9 billion in 1H21 after gathering $7.4 billion last year. Out of 14 sponsors, only four boasted assets of more than $1 billion at the end of June. Invesco led the pack with $9.2 billion of assets in six ETFs. iShares only offers one fund in this ESG sub-group, but its Global Clean Energy ETF is the largest with assets of $6.2 billion. However, we should treat all ESG-related data with caution because of the lack of industry standards. Morningstar’s categorization is no exception. It considers VanEck Vectors Low Carbon Energy ETF an environmentally focused fund. Meanwhile, it puts six other low-carbon ETFs into the “Impact” sub-category under the ESG umbrella, including the $1.4 billion BlackRock U.S. Carbon Transition Readiness ETF and the $830 million iShares MSCI ACWI Low Carbon Target ETF.