iShares enjoyed record sales at the end of 2018. These continued in January © AP

Market volatility sucked hundreds of billions of dollars from the world’s largest fund managers last month, with the two industry leaders reporting significant annual declines in assets for the time since the financial crisis.

BlackRock said falls in global equity markets at the end of 2018 had shrunk its assets by $500bn — roughly equal to the funds managed by Schroders or AllianceBernstein. This took BlackRock’s total assets under management to just below $6tn, down from $6.3tn the year before.

Vanguard, which has been fast catching its rival, experienced a $200bn decline in assets in the fourth quarter, which it blamed on market falls. The amount of money it lost was similar to the total assets of AQR.

“While the figures seem eye-popping, if you look at it from a revenue perspective, there will be a lot less impact on the businesses because it’s mainly a passives story,” said Jonathan Doolan, head of Europe, Middle East and Africa at Casey Quirk, the Deloitte-owned asset management consultancy. Passive/indexed funds provide managers with much lower fees than their active counterparts.

Mr Doolan expects lower assets across the board. The effect would be felt more acutely by mid-size active managers that charge high fees for returns close to benchmarks.

“There is a huge risk for them when you see the sort of market volatility we experienced at the end of the year,” he said.

Vanguard pointed to the fact that US markets fell nearly 8 per cent in December, their worst month since the financial crisis. It said that, despite this, the business had more than $200bn inflows for the fifth consecutive year.

“From a markets standpoint, we expect continued volatility,” Vanguard said. It stressed that investors should stick to “the time-tested investment principles” of a long-term focus, disciplined asset allocation and periodic portfolio rebalances.

BlackRock said that, despite its reduced assets, revenue increased 4 per cent over the year. It said iShares, the group’s exchange traded funds business, had record sales in the fourth quarter. Strong ETF sales continued into the new year.

BlackRock’s total inflows for the year, at $124bn, were a third of its $367bn haul in 2017. Vanguard, meanwhile, retained its title as best-selling fund manager, even though its $232bn inflows were down 38 per cent on the previous year.

The last time Vanguard reported an annual decrease in assets was in 2008, when its funds fell to $1.15tn from $1.37tn. BlackRock has experienced asset declines twice in the past 10 years, in 2008 and 2015. Each time the falls were below $50bn.

“If we look at the largest 20 firms in aggregate, assets under management fell in 2008, 2011 and 2015,” said Bob Collie, of the Thinking Ahead Institute at Willis Towers Watson, the consultancy.

“Even though assets have been rising overall for many years, and there’s been a gradual trend towards more concentration in the largest firms, there are still occasional years where even the largest firms’ assets fall,” he said. “It’s all down to movements at the market level, of course.”

Get alerts on Markets volatility when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article