NEW YORK, NY--(Marketwire - July 20, 2010) - Despite a strong rebound from the worst days of the downturn, global asset managers face tall hurdles in their quest to return to stable, precrisis growth trends and profitability levels, according to a report released today by The Boston Consulting Group (BCG).
The report, "In Search of Stable Growth: Global Asset Management 2010," BCG's eighth annual study of the worldwide asset-management industry, draws on a detailed benchmarking of leading industry competitors that BCG conducted early in 2010. The report also reflects a comprehensive market-sizing effort.
According to the report, the value of professionally managed assets rose by 12 percent to $52.6 trillion in 2009. This increase followed a decline of 17 percent in 2008. There were wide variations across regions. On average, assets under management (AuM) rose by 11 percent in North America, 12 percent in Europe, 7 percent in Japan and Australia, and 25 percent in the rest of Asia. Strong growth of 22 percent was observed in Latin America. On a global level, the increase in AuM was driven chiefly by rebounding equity markets, with only about 1 percent coming from new net inflows.
Although the value of global AuM increased in 2009, average AuM and the economics of asset managers deteriorated for the second consecutive year, the report says. Average AuM fell by 4 percent, and net revenues declined by 11 percent. Despite the fact that asset managers were able to reduce overall costs by an average of 7 percent, operating margins fell by 19 percent in 2009.
In 2010, given higher anticipated levels of average AuM and a better expected product mix, average profit margins may rebound to as much as 35 percent of net revenues -- compared with about 31 percent in 2009, 34 percent in 2008, and the historic peak of 40 percent in 2006 (for institutions that participated in BCG's benchmarking).
"A higher share of lower-margin products, pressure on prices, and structural cost increases will make it difficult to regain peak historical profitability levels in the future," said Kai Kramer, a BCG partner and leader of the firm's global asset-management practice.
According to the report, the altered playing field in the asset management industry is reflected by the following trends:
The Performance Gap Is Widening. There were greater differences across asset managers in terms of revenues, costs, and profits in 2009. Although two-thirds of players managed to reduce their overall costs, less than 20 percent raised their profitability. The latter were typically institutions that managed to increase revenues and whose recognized product expertise enabled them to attract very large inflows while maintaining price levels. The top 20 percent of competitors in terms of net inflows attracted 88 percent of net sales in 2009 -- and represented only 23 percent of AuM -- while 37 percent of asset managers posted outflows.
Investors Are Increasingly Demanding. The sophistication of investors, and, in turn, the demands that they place on their asset managers continue to grow. Asset managers will come under increasing scrutiny, obliging them to improve risk management, transparency, and overall service levels.
Products Are in Flux. Although the crisis has undoubtedly had an impact on product trends, the dust is still settling. Still, it is clear that passively managed products are growing more dynamically than actively managed ones, although there is little danger of the demise of active management. Since 2009, when alternative products went through more restructuring than other asset classes, we seem to have returned to the historical pattern of traditional, actively managed products being squeezed by the incursion of passive and alternative offerings.
Emerging Markets Will Continue to Gain Prominence. Although emerging markets' share of global AuM and revenue pools will remain relatively constant over the next few years, these markets will likely represent more than 25 percent of net sales between 2010 and 2014. A key issue in the minds of many asset managers is whether in the long term they can afford not to be in countries such as India and China.
Finally, BCG says that asset managers must sharpen their business models -- making bolder choices regarding products, target markets, and distribution -- and focus on what they do best given their particular strengths and weaknesses. Cost management will remain critical given the current market uncertainty, but growth possibilities are plentiful for institutions that are able to develop sound business models and creative strategies. In particular, expanding abroad, developing new partnerships, and enhancing offerings through M&A should be considered.
"Whether we're talking about fast-growing Asian markets, for example, or retirement markets in mature economies, opportunities still abound for asset managers," said Kai Kramer. "Despite highly uncertain times, stable and substantial growth is achievable."
To receive a copy of the report or arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.
About The Boston Consulting Group
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