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REPORT


INSTITUTIONAL CLIENT LIFETIME REVENUE REPORT

Confluence’s first-of-a-kind analysis tool empowers users to explore our
extensive dataset, conduct valuable research, and generate reports like this to
assist asset managers in evaluating revenue retention, quantifying
opportunities, and precisely valuing accounts.

by:
Benjamin Olmstead
July 18, 2023


EXECUTIVE SUMMARY



Confluence’s first-of-a-kind analysis tool, available later this year, was used
to create a new Institutional Client Lifetime Revenue report. This report
aggregates and anonymizes over 30,000 plans and $7.5T dollars of institutional
assets. We work with 80% of the top AUA institutional consultants (as ranked by
P&I), to track plan policies, actual allocations and asset flows into thousands
of institutional plans across the institutional client and plan type spectrums.
Users will soon be able to use this tool to generate their own insights that
institutional asset managers can benchmark against their peers. This will help
them to determine if they are holding onto or losing revenue, help them better
quantify opportunities and more accurately value client lifetime revenue.

Investment consultants currently use Confluence’s PARis platform, part of
Investment Metrics, to report returns, policies, fees and exposures to plans.
Because of the breadth and depth of data in Confluence’s solutions, we see a
myriad of trends on private and public plans that most do not have access to.
Private plans do not typically disclose information and public plans may
disclose only some of this information. Confluence’s platform data can be
refined down to the individual plan level with a much more granular breakout
providing additional insights beyond the learnings below.

In this new report, based on our soon-to-be-launched Confluence analysis tool,
plans are bucketed into several high-level groups. Every number is calculated
from the bottom-up. There is no sampling or extrapolation.

To effectively promote their investment products or services and establish
relationships with clients and consultants, investment managers often have many
questions regarding sales, marketing, and consultant relations. Many questions
are not properly addressed due to a lack of information or lack of data points
because mandate opportunity information is not publicly available. These same
investment managers have limited resources to expend chasing new opportunities.

Questions that often arise for institutional asset managers are:

 * What opportunities for new accounts are available?
 * Am I retaining accounts for higher or lower durations than peers?
 * What matters most for retaining accounts and assets?
 * Do I have the right vehicle for the client segment?
 * If multiple vehicles are an option, what vehicle should I lead with for a
   plan?
 * Am I chasing the highest profitability opportunities?

HIGHLIGHTS



Account durations or stickiness vary by plan sponsor type. The lifetime values
consider the median fees for the vehicle, the asset class and the client type.
Taft-Hartley defined benefit, separate account, debt accounts were almost 3X as
sticky as the least sticky category: public defined benefit, mutual fund, debt
accounts. Stickiness is defined as the duration that an investment manager holds
the specific account.

 * Debt and equity are very comparable in stickiness. The stickiness trend is
   clearly defined across client types, but the trend is mixed across asset
   classes.
 * Mutual funds were generally the least sticky and paid the highest fees. This
   is not always the case by plan sponsor type.
 * Commingled funds generally sit between separate accounts and mutual funds on
   both stickiness of accounts and fee BPS for those accounts.
 * Separate accounts are the least expensive and generally the stickiest
   accounts.
 * Foundations & Endowments are the least sticky plan type overall.
 * Foundations & Endowments also opt for the least sticky vehicle, mutual funds,
   more than defined benefit plans.

LIFETIME OF ACCOUNTS ACROSS THE INDUSTRY



Durations by plan type, asset class and vehicle vary. That variance is no
surprise to an asset manager as they know some accounts are stickier than
others. The stickiness is impacted by a million factors including performance,
employee turnover, market conditions, specific plan conditions, investment
policy statements, vehicle and plan type. This report examines plan type, asset
class and vehicle type.

Many asset managers know the longevity of accounts they manage but they may not
know the longevity of institutional accounts across the industry. The chart
below highlights the mean in years of stickiness of assets by plan sponsor type.

NO TREND IS SEEN IN ASSET CLASSES, BUT WE DO SEE A CLEAR TREND IN PLAN SPONSOR
TYPES.



Average Duration of Account by Client Type, Asset Class and Vehicle in Years
from 2010-2022

The lifetime of separate accounts ranges from 6.5 years to over 10 years. While
no trend is seen across asset classes, a clear trend is seen across plan sponsor
types. Taft-Hartley is the stickiest. Public DB is the second stickiest.



Actively Managed Mutual Fund Duration in Years

A very similar trend emerges when looking at the mean durations of commingled
funds. Taft-Hartley and public DB lead for stickiness again. The trend is
reversed between Foundations & Endowments and corporate DB. Foundations &
Endowments are the least sticky client type for commingled funds in both equity
and debt.

TAFT-HARTLEY IS ONCE AGAIN THE STICKIEST.



Actively Managed Commingled Duration in Years

Actively managed mutual funds paint a slightly different picture. Public DBs
turn over actively managed institutional share class mutual fund accounts the
quickest. Taft-Hartley is once again the stickiest.



Actively Managed Mutual Fund Duration in Years

Corporate DB and Foundations & Endowments are the least sticky. The same
overarching trends are seen in both equity and debt accounts. There are a few
nuances where mutual fund longevity exceeds commingled fund longevity. However,
the trend is clear in that mutual funds are the least sticky, followed by
commingled and separate accounts. Institutional asset managers can use this
information to benchmark internal operations and if they are holding onto or
losing revenue relative to peers. A dollar saved pays the same as a dollar won.

INSTITUTIONAL ASSET MANAGERS CAN LEARN IF THEY ARE HOLDING ONTO OR LOSING
REVENUE RELATIVE TO PEERS.



Equity Actively Managed Durations in Years by Client Type



Debt Actively Managed Durations in Years by Client Type

VALUE



The Confluence analysis tool also determined that management fees by asset
class, vehicle and plan type can also vary similarly to durations. Management
fees typically move in the opposite direction from asset class stickiness. The
‘Fees in BPS of Existing Account’ chart below shows that mutual funds are the
most expensive on both the debt and equity sides. Comingled funds are in the
middle and separate accounts are typically the least expensive. The trends in
fees are also pretty conclusive across debt and equity. Actively managed equity
is priced nearly double actively managed debt.

The trends of fee BPS by client type are much less pronounced. This may be more
of a function of other factors than just client type. A deeper analysis of more
than simply equity vs debt is needed. This report assumes that every plan type
pays the same for mutual funds.



Mutual funds are more likely to be included in smaller plans. When the same
smaller plans opt for separate accounts, they usually pay higher fees for those
separate accounts. Smaller mandates often result in larger fee BPS relative to
peers. The average tracked corporate DB plan in the report is $690M, public DB
plans are $1B, Foundations & Endowments plans are $127M and Taft-Hartley DB
plans are $319M.

ACTIVELY MANAGED EQUITY IS PRICED NEARLY DOUBLE ACTIVELY MANAGED DEBT.



Fees in BPS of Accounts existing Dec-2022

ASSETS BY VEHICLE DISTRIBUTION



The assets are not evenly distributed by vehicle or by client type. Certain
types of clients invest in vehicles differently. Foundations & Endowments are
much more likely to employ the higher priced mutual funds. Corporate DB and
public DB are virtual mirror images of each other in terms of dispersion of AUM
by asset class. Taft-Hartley DB is similar to corporate and public DB for equity
vehicle selection but closer to foundations & endowments for debt vehicle
selection.



Percentage of Account AUM by Client and Asset Class Dec-2022

Taft-Hartley DB debt is the key spot for maximizing longer term consistent
growth. Accounts in this space are the stickiest, especially on the debt side.
Commingled funds are a great way to grow in the public DB space. However, the
corporate DB space shows that commingled funds are not nearly as strong and
consistent revenue generating.

TAFT-HARTLEY DB DEBT IS THE KEY SPOT FOR MAXIMIZING LONGER TERM CONSISTENT
GROWTH.

CLIENT LIFETIME VALUE



Mixing the durations and fees gives us a unique picture of client lifetime
value. Using the Confluence analysis tool to examine vehicles and account
longevities, allows asset managers and Investment Consultants to determine:

 1. Where they need to have a vehicle available to meet market demand.
 2. What opportunities they can focus on to maximize client lifetime revenue.



Lifetime Account Value in 000’s

All client lifetime values are assumed to be for a $10M mandate. The number is
in thousands of dollars and is the total value of the mandate over the typical
duration that the asset manager has the account. The lifetime values consider
the median fees for the vehicle, the asset class and the client type.

Taft-Hartley DB debt is the key spot for maximizing longer term consistent
growth. Accounts in this space are the stickiest, especially on the debt side.
Commingled funds are a great way to grow in the public DB space. Commingled
funds do not provide nearly as strong or consistent revenue generation in the
corporate DB space.

CONCLUSIONS



Predicting revenue and cash flow for asset managers is challenging. Part of the
challenge is that the longevity and revenue is partly driven by factors
completely out of asset managers’ control. This report is just one example of
the types of insights we can provide with the soon-to-be-launched Confluence
analysis tool. This report sheds light on the typical durations and fees of the
institutional asset management industry so that asset managers can better
quantify opportunities and accurately value the client lifetime revenue and
value of accounts.

 * Taft-Hartley DB accounts should be prized as they typically represent the
   stickiest accounts with the longest duration cash flow with a resultant
   highest lifetime value.
 * Foundations & Endowments skew more toward mutual funds for equity and
   especially debt.
 * These mutual funds typically pay higher fees, but the lifetime value does not
   offset commingled funds for Foundations & Endowments.
 * Commingled funds represent the lowest revenue opportunity of the vehicles
   examined for corporate DB plans.

Asset managers need a million factors to be favorable for mandate longevity.
This report and other insights from Confluence can help managers gain early
insights to stay ahead of the curve.

DATA & METHODOLOGY



Combining account duration with actual post-negotiated fees shows unique
opportunities for institutional asset managers. The durations were of accounts
that closed from 2010-2022 on Investment Metrics’ PARis platform. All durations
are in years. The account needed to be closed so that we could measure the full
duration from first funding to termination. We measured those account durations
by plan sponsor type, by asset class and by invested vehicle type. Fees were
examined based on actual post-negotiated fees, not listed fees, and by vehicle.
It was assumed that all plan sponsor types received the same mutual fund fees.
All accounts were actively managed. Passive accounts were excluded entirely as
passive fees and passive account durations can significantly skew the results.
Passive accounts have significantly lower fees than active accounts. Passive
mutual funds may also be used as a temporary holding account to give the plan
market exposure when the account is between managers skewing the durations.
Client lifetime value was modeled on a $10M account from the first day the
account was funded to when it was terminated.

DISCLAIMER

The material presented in this document is an assessment of the market
environment as of the date indicated; is subject to change; and is not intended
to be a forecast of future events or a guarantee of future results. This
information should not be relied upon by the reader as research or investment
advice regarding any funds or any issuer or security or similar.

This document contains general information only, does not consider an
individual’s financial circumstances and should not be relied upon for an
investment decision.

Confluence does not provide investment advice and nothing in this document
should be considered any form of advice. Confluence accepts no liability
whatsoever for any information provided or inferred in this document.

ABOUT CONFLUENCE



Confluence is a leading global technology solutions provider committed to
helping the investment management industry solve complex data challenges across
the front, middle and back offices. From data-driven portfolio analytics to
compliance and regulatory solutions, including investment insights and research,
Confluence invests in the latest technology to meet the evolving needs of asset
managers, asset owners, asset servicers, and asset allocators to provide
best-of-breed solutions that deliver maximum scalability, speed and flexibility,
while reducing risk and increasing efficiency. Headquartered in Pittsburgh, PA,
with 750+ employees in 15 offices spanning across the United Kingdom, Europe,
North America, South Africa, and Australia, Confluence services over 1000
clients in more than 40 countries. For more information, visit
www.confluence.com.

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In this article:

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 * Lifetime of Accounts Across the Industry
 * Value
 * Assets by Vehicle Distribution
 * Client Lifetime Value
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