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An Additional $0.02: 4 Thoughts on DB Market Share

Sometimes when we get quoted in the press, I wish that we were able to be more expansive in our thoughts. I understand why that doesn’t happen in a reporter’s article, but that doesn’t mean we can’t do it here.

Last week FundFire wrote a story on the market share decline for the top 10 managers in the US Defined Benefit space (35% in 2012, 32% in 2012). In the story we highlighted one very obvious and one moderately obvious conclusion from Cerulli’s data:

In the data, it’s clear that a lot of the net result is numerically derived from what’s happened at SSgA. That said, the relative market share of the top 10 ex-SSgA has also declined in the 2010-2012 timeframe.

So what if FundFire let us ramble on from there? Here are 4 thoughts we’d have added:

1. It is somewhat arbitrary to draw the line at 10 firms in considering overall industry dynamics. As we see here, 1-2 firms can significantly influence conclusions.
2. Plus, the US DB market is not very concentrated to begin with relative to numerous other industries. A 32% share among the top 10 with a severely long tail of assets spread across a large pool of niche providers makes the “top 10” a less meaningful group to focus on.
3. A 3% decline likely does not indicate any clear trend in industry concentration.
4. And finally, the very nature of the DB market dictates that institutions will always look for other/better options. As John Garibaldi from JPMorgan notes in the article, “[Institutions are] always looking to hire a specialist in every part of the capital market spectrum.”

Things can change of course, but until M&A runs rampant and/or margins squeeze smaller managers out of the business, I don’t perceive a much higher ceiling for the “top 10”.