Evolution Revolution 2010 Report
The Investment Adviser Association and National Regulatory Services are pleased to present our tenth annual Evolution Revolution report—a profile of the SEC-registered investment adviser profession. This report identifies significant trends and developments based on information that investment advisers are required to file with the U.S. Securities and Exchange Commission.
This report follows enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which will dramatically change the database of SEC-registered investment advisers. For example, the new law increases the assets under management (AUM) threshold for registering with the SEC to $100 million (from $25 million). This change alone will shift 3,500-4,000 SEC-registered investment advisers to state regulators. In addition, the law requires hedge fund and private equity fund advisers with $150 million AUM or more to register with the SEC under the Investment Advisers Act. These and other provisions will have profound consequences for the advisory profession.
This report includes more data than in previous years, much of which appears in the appendices. For example, we have included data for all ten years in Appendix 10.
We hope that this report will contribute to a better understanding of the diverse investment advisory profession. We welcome your feedback and comments.
Following are key findings of our 2010 report:
- Assets under management. Total assets under management (AUM) reported by all SEC-registered investment advisers rose $4.6 trillion (13.4%) between 2009 and 2010, from $34.0 trillion in 2009 to $38.6 trillion in 2010. The increase in assets was widespread and significant.
- Number of advisers. The total number of SEC investment adviser registrations increased slightly between 2009 and 2010. In 2010, 11,643 entities were registered with the SEC as investment advisers, compared to 11,257 in 2009.
- Asset concentration. A few large investment advisory firms continue to manage a disproportionate share of total assets. 508 advisory firms (4.4% of all SEC-registered investment advisers) reported managing more than $10 billion in assets, yet collectively accounted for approximately 83.3% of all assets ($32.1 trillion). Of these, only 64 reported AUM of $100 billion or more, but these mega-firms accounted for $18.7 trillion total AUM (48.4%). The number of firms with $100 billion AUM or more grew from 61 in 2009 to 64 in 2010 (4.9% increase). Firms with $50-100 billion AUM grew from 65 in 2009 to 81 in 2010 (24.6% increase).
- Smaller advisers. The vast majority of SEC-registered investment advisers are small businesses. In 2010, 9,641 investment advisers reported managing less than $1 billion in assets (82.8%). Of these, 4,228 (36.3%) reported managing between $25 million and $100 million in assets. 10,574 advisers (90.8%) reported 50 or fewer employees (not including clerical workers). Of these, 8,054 advisers (69.2%) reported 10 or fewer employees.
- Hedge fund advisers. The number of advisers that specialized in hedge funds (i.e., those that reported more than 75% of their clientele as hedge funds or other pooled investment vehicles) declined for the fourth straight year to 1,271 or 10.9% of all advisers. By comparison, hedge fund advisers accounted for 16.1%of all advisers in 2006 when they numbered 1,661. Going forward, we expect the number of private fund advisers to grow, given the mandate in the Dodd-Frank Act requiring hedge fund and private equity fund advisers with at least $150 million AUM to register with the SEC under the Investment Advisers Act by July 21, 2011.
- Advisers with custody. The number of advisers reporting that they or a related person have custody of client assets fell from 32.3% in 2009 to 30.8% in 2010. This reduction may result from advisers making changes in certain accounts with respect to which they were deemed to have custody in order to avoid surprise audits for such accounts required by new SEC rules.
- 10 years of data. As a special feature in this year’s report we have attached a series of appendices providing additional statistical detail on reported filings including one that provides a 10-year compilation of statistics. See Appendix 10.
Explanation of Report Data
This report is based on Form ADV, Part 1 data filed by SEC-registered investment advisers with the SEC as of April 18, 2010. Advisers are required to file information electronically using the Investment Adviser Registration Depository (IARD) system. SEC regulations require investment advisers to update Form ADV, Part 1, no later than 90 days after the end of the adviser’s fiscal year. Because the overwhelming majority of investment advisers (92.1%) operate on a calendar-year basis, the data we are using represents the most current information available for 2010.
SEC-registered advisers generally manage $25 million or more in assets. Advisers with less than $25 million AUM generally are required to register with the state in which their principal office is located.1 The $25 million AUM threshold was established when Congress enacted the National Securities Markets Improvement Act of 1996 (NSMIA). The recently adopted Dodd-Frank Act will increase AUM threshold to $100 million while permitting SEC registration for an adviser that otherwise would be required to file in 15 states, subject generally to state registration and examination requirements.
Form ADV, Part 1 has significant limitations and anomalies. Please consult the text of Form ADV (available on the SEC’s web site) for a more thorough understanding of the underlying data included in this report. Further, the SEC instructions for Form ADV, Part 1 permit more than one adviser to report the same assets and accounts under certain circumstances (e.g. sub-advisory relationships). Therefore, aggregate figures may be overstated.
IAA and NRS have independently tabulated all data in this report. Whenever a number is rounded, it is rounded from the original data source.2