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The Massachusetts Financial Services Portfolio Today Retirement Savings • Boston is home to 3 of the top 10 retirement savings managers, making it the number one cluster of market lead

The Massachusetts Financial Services Sector

Talent and Technology – A 2024 Vision

June 2015

Table of Contents

• Executive Summary

• State of Financial Services in Massachusetts

• Trends Impacting Mass Finance

• Talent in Massachusetts

• Conclusion

• Financial Services is a cornerstone of the state’s economy and a critical component of the innovative system

• State’s most important for-profit sector:

Provides 4.8% of state employment, 9% of GSP

• Above-average wages, solid middle class jobs

• Average employee income of $115,810/yr,

more than double the state average

The Massachusetts Financial

Services Portfolio Today

The Massachusetts Financial

Services Portfolio Today

Retirement Savings • Boston is home to 3 of the top 10 retirement savings managers, making it the number one cluster of market leaders Mutual Funds • Home of the mutual fund, MA accounts for 18% of assets under management in the U.S Assets under management in the state grew 16.3% in 2013

Custody: The national leader • A national leader in custody and administration services with two of the nation’s largest operations, BNY Mellon and State Street, totaling approximately $55

trillion in assets under custody and administration

Insurance: Top ten portfolio • One of two states to be home to top 10 insurers in each of the property & casualty, life, and health sectors

Hedge Funds: A Connecticut competitor • MA is home to 6 of the top 50 hedge fund managers in the U.S. 1

Venture Capital/Private Equity • Of the $57.4 billion invested by the VC sector in 2014,

9.2% was invested in New England-based firms

• Third to NY and CA in number of PE firms, third in aggregate capital raised over the last 10 years2

• Home to 3 of the top 15 private equity firms in

total funds raised over the last 10 years

• Private Equity funding is a top indicator of innovation and new technology in the region

Education:

Cultivating and Retaining Talent

• Top graduate business schools: Harvard, M.I.T., Babson, Bentley,

BC, BU, Brandeis, Northeastern, and UMASS

• Over 50,000 international students come to Massachusetts to

learn every year

The Massachusetts Financial

Services Portfolio Today

1: Source: Absolute Return: Billion Dollar Club Top 100 2: Source: Thomson One

The Future Vision Massachusetts as a Financial Technology Center

Talent • Talent is short in high-demand areas such as FinTech, risk/regulatory and advanced analytics • International students are coming to Boston and Massachusetts more than ever to learn and live, but

are too often returning home after graduation

• Massachusetts is hindered due to negative perceptions on infrastructure and cost of living

Technology • Technology advancements have enabled enhanced customer experience and operational

enhancements across the Financial Services sector

• The regulatory landscape is challenging the structure and economics of the industry

• Retirement savings is becoming more important as the world ages

• Alternative and passive investments are becoming more mainstream, and will represent

35% of assets under management by 2020.1

1: Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

The Future Vision Massachusetts as a Financial Technology Center

Key Takeaways • Mass Finance is well positioned to take advantage of growth in the sector

by developing new products to lead in asset management and insurance

• There is an increased need for graduates and professionals with skills in new technologies

• Massachusetts strengths in education give the region a unique advantage to

develop and attract the top talent needed to grow

• Massachusetts can fight negative perceptions by branding Boston as an

attractive city for young professionals

Table of Contents

• Executive Summary

• State of Financial Services in Massachusetts

• Trends Impacting Mass Finance

• Talent in Massachusetts

• Conclusion

Mass Finance makes a leading contribution to Gross State Product

Industry Employed Percent of total MA

Source: Bureau of Labor Statistics, 2014

*Includes the following: Computer Systems Design and Related Services, Computer and Peripheral Equipment Manufacturing, Computer and Electronic Product Manufacturing; and Software Publishers

Mass Finance employs approximately 167,000 in 2014

• The Finance and Insurance industry contributed to 9% of the total

state output in 2013 This is the third highest contributing for-profit

industry in the state behind Real Estate and Professional Services

(of which a portion supports the Finance and insurance industry)

Mass Finance supports more middle income jobs

• In 2013, the average salary for all occupations in the private sector and non-farm payrolls in Massachusetts was $49,910

• The average 2013 wage for Massachusetts employees in the Financial Activities industries was $115,810

Massachusetts Finance Wages, 2014

Financial Services Median

Income

Securities, Commodities, & Financial Services Sales Agents $117,610

Mass Finance is a For-Profit

Employment Leader

2014 Mutual Fund AUM ($US billions)

CA 21%

NY 18%

PA 19%

Source: Strategic Insight/Simfund, Dec 2013

2014 Top 100 Hedge Funds AUM by Location ($US billions)

CA 70.84

CT 138.88

IL 22.1

MA 98.4

NJ 14.6

NY 466.25

Other 62.29

California Connecticut Illinois Massachusetts New Jersey New York Other

In 2014, mutual fund assets in Massachusetts grew 4.2% and

at the end of the year, Massachusetts accounted for 18% of

the total U.S mutual fund assets under management In the

US, Mutual funds saw significant net new flows in 2014

($177.8 billion), the second-highest since 2008

14 of the hedge funds in Absolute Return’s Billion Dollar Club are located in Massachusetts and have more than

$120 billion in assets under management

The Massachusetts Financial Services Portfolio

Mass Finance firms are also critical to financing emerging companies and startups In the past 4 years, the state has ranked second in the U.S in terms of the total investment of venture capital The capital invested by private equity activities is being put to use by

Massachusetts based companies across a variety of industries, such as, Software, Biotechnology, and Medical Devices Massachusetts based companies captured close to 9% of the total US venture capital invested in 2014 The amount of VC money invested increased approximately 50.4% in 2014 for Massachusetts

Number of Private Equity Investments By State

2014 Venture Capital Investments Amounts

Total VC Investments in the US $57,344,570,000 Total VC Investments in New England $5,289,530,000

Funding the Companies of the Future

Cumulative Venture Capital Investment By State (US$

millions) 2011 -2014

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000

Source: Thomson One

Source: The MoneyTree™ Report from PwC and the National Venture Capital Association based on data provided by Thomson Reuters

Massachusetts is a leader

in the U.S with respect to

“savings banks” with

nearly $72 billion in total

deposits

Source: Company Reports, 2014, SNL

0 20,000,000 40,000,000 60,000,000 80,000,000 100,000,000 120,000,000

Mass Finance:

A Competitive Banking Sector

Source: Company Reports, 2013, SNL

Source: SNL, 2014

Massachusetts is home to sizeable Life, Accident & Health Insurers in the US that add to the strong insurance industry presence

Top US Property & Casualty Insurers 2014 Top US Life, Accident & Health Insurers 2014

Company name Net Premiums

Written (US$

millions)

US Market Share %

Location

1 State Farm Mutl Automobile Ins $58,509 10.3% IL

2 Liberty Mutual $29,317 5.2% MA

3 Allstate Corp $28,892 5.1% IL

4 Berkshire Hathaway Inc $26,447 4.7% NE

5 Travelers Companies Inc $22,791 4.0% MN

6 Progressive Corp $20,057 3.5% OH

7 Nationwide Mutual Group $18,936 3.3% OH

8 Farmers Insurance Group of Cos $18,612 3.3% CA

9 American International Group $18,351 3.2% NY

10 USAA Insurance Group $15,678 2.8% TX

27 Hanover Insurance Group $3,948 0.7% MA

3 New York Life Insurance Group $28,394 4.8% NY

4 Jackson National Life Group $26,708 4.5% MI

5 AEGON NV $25,339 4.3% IA

6 Lincoln National $24,329 4.1% PA

7 American International Group $23,280 3.9% NY

8 Principal Financial Group $18,892 3.2% IA

60 Sun Life Financial Inc 1,162 0.2% MA

*: Market share determined by national direct premiums

Massachusetts is home to Liberty Mutual Insurance

Group, the overall second largest Property & Casualty

insurer in the US

Mass Finance:

A Strong Presence in Insurance

Bachelors Degrees Awarded (per capita) by State

Masters Degrees Awarded (per capita) by State

Source: US Department of Education, 2011

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8

Source: US Department of Education, 2011

• The Finance sector in Massachusetts has long had connections to

academia and has employed and cultivated the top talent in finance

along with the strong universities in the region

• Massachusetts has been able to supply top talent to the Finance

sector and is a critical piece of the “ecosystem”, as the state’s

residents are among the most educated in the country

• In 2011, Massachusetts ranked second in the number of Masters

degrees awarded per 100 people at 0.43

• Massachusetts is home to the country’s top graduate business

Table of Contents

• Executive Summary

• State of Financial Services in Massachusetts

• Trends Impacting Mass Finance

• Talent in Massachusetts

• Conclusion

Changing Landscape among

Asset Managers, Banks and

Insurers

Regulation may hinder banks and insurers and force them to abandon proprietary investing and other noncore businesses with asset managers filling the vacuum

Product Innovation

Within Banking, there will be a shift from branch to digital banking Insurance products will be “bought” by customers as opposed to

“sold” by insurance companies and intermediaries Alternative Funds and ETFs will continue to grow within the AM sector

Community banks will need to continue to invest in technology to stay competitive with larger global banks

Rise of the emerging markets

Asset managers will be at the center of efforts

by SWFs to diversify their huge pools of assets Banks and insurers will need to address the needs of new groups of people in

emerging regions

Changing Landscape among Asset Managers, Banks and Insurers

Considering Massachusetts’ dominance in Asset Management versus banking and insurance, the State should benefit disproportionally to the rest of the country due to this shift

in the value chain as consumers bypass intermediaries and work with the carrier In

AM, Massachusetts firms are well positioned within Alternatives and ETFs and poised for further growth

Rise of the emerging markets

Driven by a rapid accumulation of foreign assets

by oil-exporting and Asian nations, SWFs will grow from $5t to $9t by 2020 Based on PwC analysis, with an asset management center of excellence in Massachusetts, the State stands

to benefit from this trend

Key Financial Services Trends

Impacting Mass Finance

• As the deleveraging of banks continues through 2018, in part driven by the European Central Bank’s ongoing focus on stress testing the balance sheets of Europe’s top banks, asset managers will continue to move into areas traditionally dominated by the banks

• Global Investable Assets for the asset management industry will increase from $60t to more than $100t by 2020, with a compound annual growth rate of 6%

27.0

41.2 18.7

Mutual Funds Mandates Alternative Investments

Changing Landscape Among Asset Managers, Banks and Insurers

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

• Global AuM growth will be driven by pension funds, HNWIs and sovereign wealth funds as shown in the table below

Given Massachusetts’ competencies in mutual funds, alternatives, wealth management and retirement assets, the State is

well positioned for future growth The shift of assets from the banking industry should be an overall benefit to the state

given the relative size of the AM sector

Changing Landscape Among Asset Managers, Banks and Insurers

Note: Differences in sums are due to rounding The sum of AuM by clients does not equal the sum of AuM by products shown above due to double counting

(1) The 2020 ‘s value for SWF is under the best case scenario

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

Developed-market populations are aging, driving

focus towards savings and investment and away

from credit and consumption As a result, the

expansion of retirement products across insurance

and asset management to assist this aging

population is expected to continue Retirement

assets have risen from $21.3t in 2004 to $33.9t in

2012 and we predict they will grow by 6.6% a year

to reach $56.5t in 2020

Massachusetts is home to the largest retirement

assets recordkeeper in the US in Fidelity

Investments In addition, Mass is home to 3 of the

top 10 DB/DC managers

In banking, we expect that Wealth Management will move alongside deposit-taking as a baseline service as customers are taking increasing

responsibility for their lifelong financial well-being and planning in both the developed and emerging worlds Boston has a strong presence in Wealth Management, including Fidelity and Boston Private Bank As detailed earlier, HNWIs assets are expected to double to $77t by 2020, and

Massachusetts Wealth Managers stand to win their share of this growth Additionally, Massachusetts' insurance industry should also benefit from the projected increase in retirement assets

Changing Demographics

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

Rise of the Emerging Markets

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

• Alternatives and passive investments combined will represent 35% of total assets managed by the industry; and

• ETFs will continue to gain momentum globally across all channels

11%

10%

79%

AuM in 2012 (USD trn)

Passive Alternative Active

Passive Alternative Active

22.7

13.0

66.0

Passive ETFs

Projection of active, alternative and passive

Product Innovation: Alternatives become more mainstream – a US $13 trillion market by 2020

Source: PwC LLP, Asset Management 2020: A Brave New World, January 2014

NY 47%

MA 23%

PA 20%

IL 8%

MD 2%

• Massachusetts Asset Managers continue to be innovative and poised to capitalize on trends within the ETF space Fidelity, which launched 14 ETF funds since 2013 has already experienced inflows of $2.4b In addition, Eaton Vance recently received approval for non-transparent ETFs, which have the potential to change the industry Mass is second in ETF assets managed, with 20% growth in assets in 2013 alone

• In addition to strong position of hedge fund managers in the State, the major mutual fund players are also benefiting from the trend toward Alternatives, with the increase of liquid alternative funds Firms such as Putnam and GMO have a significant amount of assets

in “alternative mutual funds”

2013 Top Five States ETF AUM ($US millions)

Source: Strategic Insight/Simfund, Dec 2013 0

500000 1000000 1500000 2000000 2500000