Global assets under management hit a record $68.7 trillion and profits surge to $93 billion, yet there is little room for complacency, says the annual BCG study.
The global asset-management industry has recorded its strongest year of recovery since the financial crisis, as assets reached record levels and profits surged to near-all-time highs, according to a new report by The Boston Consulting Group (BCG), says a press release.
Global assets under management (AUM) recorded a second consecutive year of solid growth, rising to $68.7 trillion in 2013, according to BCG’s twelfth annual study of the worldwide asset-management industry, Global Asset Management 2014: Steering the Course to Growth.
Industry profits in absolute terms surged to $93 billion, and profits as a percentage of revenues also made gains, BCG found. 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 pre-crisis heights,” said Gary Shub, a Boston-based BCG partner and a coauthor of the report. Operating margins, or profit as a percentage of net revenues, grew from 37 percent in 2012 to 39 percent in 2013, compared with a high of 41 percent before the crisis, according to BCG.
“On average the asset under management witnessed an increase of 13 percent to a record $68.7 trillion in 2013. The growth was largely represented by global surge in equity markets rather than new inflows. The net flows were represented at 4 per cent in the developing markets including India driven foremost by retail investors. Asia including India witnessed a robust growth, however AUM globally witnessed a varied growth. Differences in equity market performance was the main source of regional variation.” says Ashish Garg, a financial services partner based out of BCG, India.
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 a coauthor of the report. “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 percent 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 BCG 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 nontraditional assets, new competitors providing nontraditional assets, and globalization.
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.
“For all these reasons, developing the right target operating model is crucial for asset managers if they are to steer strategically, safely, and profitably,” said Simon Bartletta, a BCG senior partner and a report coauthor who is based in Boston.
According to the press release, Global Asset Management 2014 is based on comprehensive market-sizing research by BCG. This report covers 43 major markets, representing more than 98 percent of the global asset-management market. The research focused exclusively on assets that are professionally managed for a fee.
The
report also drew on a 2014 benchmarking study of more than 120 leading asset
managers, representing 53 percent of global AUM. Benchmarking data on fees,
products, distribution channels, operating systems, and costs provided insights
on the industry’s underlying sources of profitability.
