On the strength of robust markets, the global asset management business completed its post-crisis recovery, reaching records asset levels and near-record profits in 2013, but the future looks far from comfortable, says a new report from the Boston Consulting Group (BCG).
According to the report, global assets under management (AUM) reached record levels last year, hitting US$68.7 trillion, as the industry enjoyed its strongest bounce back year since the financial crisis. And, at the same time, total profits hit US$93 billion, as firms managed to increase their already-healthy margins to 39% from 37% the previous year; almost back to their pre-crisis levels of 41%.
“Asset management continues to rank among the most profitable industries, with operating margins close to their pre-crisis heights,” noted Gary Shub, a partner with BCG and co-author of the report.
However, the report also found that the industry’s asset growth continues to be largely driven by rising equity markets, rather than new inflows. While net new flows were at their highest level since the crisis, at 1.6% of AUM, they contribute a small part of total growth, the report notes. And, it says that most of the new asset flows are going into nontraditional asset classes and products.
“Despite the mostly positive picture, traditional asset managers have little room for complacency,” said Brent Beardsley, senior partner, global leader of BCG’s asset and wealth management practice, and a co-author 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.”
Indeed, the report notes that asset managers are facing increasing regulatory costs, and other profit headwinds. The report points to five “disruptive trends” that firms will have to face in the years ahead to manage profitable growth: regulatory change, technological change, more demanding investors with a growing preference for nontraditional assets, new competitors providing those nontraditional assets, and globalization.
Faced with tougher competition and more demanding customers, the report says that asset managers “need to shift focus from selling products to solving client problems”.
“For all these reasons, developing the right target operating model is crucial for asset managers if they are to steer strategically, safely, and profitably,” added Simon Bartletta, senior partner at BCG and co-author of the report.