Assets managed in Environmental, Social, and Governance (ESG) mandates by the 500 largest asset managers in the world rose by 23.3% in 2018, in contrast to their overall assets under management (AUM), which were down 3% from the previous year, according to the latest Global 500 research from the Thinking Ahead Institute. Assets managed according to ESG principles also increased over the year, by 17.8%.

The research was conducted in conjunction with Pensions & Investments, an international investment newspaper.

Sustainability and the importance of culture in the effective practice of investment organisations were key areas of interest in 2018. The report notes that connecting the dots from culture to strategy, to beliefs and values, and to vision and mission, has become a critical leadership challenge and opportunity.

A stronger underlying purpose, beyond the pursuit of only growth and profit, is identified as a differentiating factor in an overcrowded industry facing a challenging environment. Client interest in sustainable investing, including voting, increased across 83% of the firms surveyed.

Bob Collie, head of research at the Thinking Ahead Institute, notes, “Sustainability has now become an unavoidable issue and talk on sustainability is becoming action. There is obviously a saying-doing gap in a lot of places, but perhaps more important right now is the doing-impact gap: our ability to create a more sustainable economy lags behind the desire. The most meaningful efforts on this front are the ones focused on closing that gap.

“There is also a growing appreciation of the importance of culture. Good culture does not appear by accident, and our ability to assess and adapt it is developing. There’s room for improvement here.”

The research also found that some 242 names on the 2008 list of the global 500 asset managers are not found on the 2018 list. Whilst the past decade has been a fairly benign environment for asset managers with rising markets and strong margins, most observers expect increased pressure in the coming years from rising regulatory activity, fee compression and the high cost of technology.

Eighty-one percent of fund managers stated that they had increased resources deployed to technology and big data, whilst 57% of managers surveyed said they had experienced an increase in the level of regulatory oversight.

Collie adds, “The regulatory burden on the industry is a symptom of a lack of trust. Rebuilding that trust means more focus on the long term. Without a clear sense of purpose, you can end up being just another one of 500 firms fighting for elbow room in an ever-more-challenging environment.”

Despite the global decline in AUM, Asia-Pacific markets experienced an overall growth of over 19% during 2018 compared to 2017. Over the last five years since 2014, India has led the way in Asia with 22.7% AUM growth followed by China at 21.6%. However, Japan experienced a 0.3% AUM decline over the same period.

Jayne Bok, head of investments, Asia at Willis Towers Watson, says, “The data in this year’s report clearly show how Asia’s percentage of global AUM continues to increase compared to other regions. However, to maintain this growth in an ever-changing investment environment, Asian asset managers will need to start embracing ESG investing. To do this, firms will need to create a culture that enables sustainable investing to flourish. This starts at the very top and requires leaders to step up, demonstrate clear values and show the courage and determination to invest in projects that create a better society for all.”

The research shows how the last decade has seen an increase in the representation of managers from the US, Canada, China and Australia. In 2008, managers from China had a 0.33% share of global AUM. In 2018, this had risen to 2.70%. By contrast, asset managers from Japan and some European markets have lost market share during this period. In Asia, asset managers from China now make up nine of the top 20, compared to just three in 2017.

Jayne adds, “In Asia, we’re continuing to see the rising contribution of China to the global asset management community, with Chinese representation in both distribution of assets and assets under management increasing. This shows how, despite ongoing uncertainties connected to the US-China trade war, more and more investors are now seeing China as an opportunity to diversify their portfolios.”

BlackRock remains the largest asset manager in the rankings, a position it has held since 2009. Meanwhile, Vanguard and State Street complete the top three for a fifth successive year. Sumitomo Mitsui Trust Holdings, Nippon Life Insurance, Mitsubishi UFJ Financial Group and Asset Management One were the only Asian asset managers ranked in the Top 50.