Asset Management Recovery Gathers Steam

The global asset-management industry has recorded its strongest year of recovery since the 2008 financial crisis, as assets reached record levels and profits surged to near-all-time highs, according to The Boston Consulting Group (BCG).

BCG’s 12th annual study of the worldwide asset-management industry, entitled
‘Global Asset Management 2014: Steering the Course to Growth’
, reports that global assets under management (AuM) recorded a second consecutive year of solid growth, rising to US$68.7 trillion in 2013.

Industry profits in absolute terms surged to US$93bn, and profits as a percentage of revenues also made gains. Net flows of new assets to managers recorded their strongest post-crisis gains, also for the second year in a row.

“Asset management continues to rank among the most profitable industries, with operating margins close to their precrisis heights,” said Gary Shub, a Boston-based BCG partner and a co-author of the report. Operating margins, or profit as a percentage of net revenues, grew from 37% in 2012 to 39% in 2013, compared with a high of 41 percent before the crisis, according to BCG.

‘Little Room for Complacency’

“Despite the mostly positive picture, traditional asset managers have little room for complacency,” said Brent Beardsley, a Chicago-based BCG senior partner, global leader of the firm’s asset and wealth management segment, and another of the report’s co-authors. “The market continues to shift away from traditional managers’ main business of actively managed core assets, eroding their asset share in the global pool.”

Asset growth continues to be largely the result of rising equity markets, rather than new asset flows, the report notes. Net new flows of 1.6% of prior-year AuM – although the strongest since the crisis -remain a modest part of total growth, and most of those flows go to specialties, solutions, and nontraditional asset classes. The global profit pool remains under pressure in many markets.

For all types of managers, the future looks increasingly complex, costly, and constrained by waves of regulation, the report says. It identifies five ‘disruptive trends’ that asset managers must confront in order to achieve profitable growth: regulatory change, the digital and data revolution, more demanding investors with a growing preference for non-traditional assets, new competitors providing non-traditional assets, and globalisation.

The report also says that tougher competition and more demanding customers are raising the bar on service. Asset managers need to shift focus from selling products to solving client problems, the report concludes.

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