Institutional winners from Vanguard's mandate switch

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Institutional winners from Vanguard's mandate switch

State Street Global Advisors (SSGA) and BlackRock were the two main winners from Vanguard's switch in October 2020, where the fund manager announced it would shift from competing for institutional funds to focusing on retail investors.

Vanguard's policy shift coincided with Vanguard's initiative to re-enter the retail superannuation market and offer their own product direct to investors. This move most likely capitalises on the phenomenal growth of exchange traded funds (ETFs) in Australia and the success of Vanguard Personal Investor through which retail investors can, for very low fees, access a range of Vanguard ETFs and managed funds.

Vanguard's decisions are impacting their local footprint, at least in the short term. In June 2020 Rainmaker estimated they had $61 billion in institutional mandates. But by June 2021, Rainmaker estimated this has almost halved to $31 billion.

This strategic shift has created a windfall for a small number of other funds managers. SSGA's total institutional super fund mandates increased $19 billion through the period, BlackRock's increased $12 billion and Macquarie Investment Management experienced an $8 billion lift.

"Vanguard is a very significant funds manager in Australia. For them to make such a bold move has significantly impacted the market. The biggest winners so far appear to be other leading low-cost index funds managers, State Street Global Advisors and BlackRock," said Alex Dunnin, executive director of research and compliance at Rainmaker Information.

In the year since Vanguard's announcement, the funds that institutional investment managers are competing for increased from $2.7 trillion to $3.2 trillion.

Of the $61 billion managed by Vanguard, international equities was the largest asset class with 29%. Their next largest asset class was 'other' and Australian fixed interest both with 24% and Australian equities with 14%. International fixed interest, cash and property were the remaining 8%.

Among the super funds with mandates previously being managed by Vanguard, SSGA was the investment manager with the most gains in mandates from Aware Super, Sunsuper, and QSuper.

"These super funds are amongst the biggest, best performing and lowest cost super funds in Australia. There's only a small number of investment managers with sufficient scale to step into the shoes of Vanguard. It needs to emphasised as well that they haven't shifted all their Vanguard business to their new investment managers, at least not yet," said Dunnin.

First Sentier Realindex and Harris Associates were the managers with significant mandates gained in the period from Cbus and AustralianSuper respectively. Blackrock's gains appear to have been smaller and spread across multiple funds.

Super fund (client)

FUM ($b) in 2020

New manager

Aware Super

25

SSGA

Sunsuper

15

SSGA

QSuper

10

Dimensional/SSGA

Cbus

5

First Sentier Realindex

AustralianSuper

2

Harris Associates

Notably, all the above external managers operate predominantly in the equities asset class.