hrinkage. That is the term that retailers use for the inevitable loss of inventory as goods move from the production line to the sales floor. Now the asset management industry is seeing its own form of the phenomenon. In this case shrinkage comes from losing assets after one subadvisor sells the mandates to another subadvisor.
One of the largest cases of shrinkage was reported today when Fidelity Investments
confirmed that it is pulling the asset management of five of its index funds back in-house. The funds, which include the firm's five Spartan offerings, are now subadvised by Deutsche Bank
. The $25.6 billion of mandates will revert to Fidelity from Deutsche Bank on January 13 of next year.
The decision to terminate the subadvisory relationship was made after Deutsche Bank sold its indexing business to Northern Trust
on September 27 of this year. At the time the price tag on the deal was $260 million. That price will likely be adjusted downward to reflect the loss of the assets pulled by
"Deutsche's sales let us to closely examine the subadvisory structure we had in place for these funds," explained a spokesperson for Fidelity. The spokesperson added that Fidelity already manages several billions of passive assets for institutional accounts.
Fidelity's decision to not move its assets to Northern takes a 21 percent bite out of Northern's deal with Deutsche. All told, Deutsche Bank had intended to transfer roughly $120 billion of assets to Northern Trust. Sans the Fidelity business, the amount of assets moving to Northern is expected to fall to less than $95 billion. Northern said it managed $327 billion of passive assets when it announced the deal in September.
Fidelity officials said that the decision to bring the duties in-house had nothing to do with the capabilities or the service provided by either Deutsche Bank or Northern Trust. "We had no issues with either firm," confirmed the spokesperson.
The funds are Spartan 500 Index Fund
, Spartan Extended Market Index Fund
, Spartan International Index Fund
, Spartan Total Market Index Fund
, Spartan U.S. Equity Index Fund
and VIP Index 500 Portfolio
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