As the economic cycle winds down and industry competition heats up, asset managers faces challenges. To be successful in the years ahead will require capitalizing on numerous trends.
Consider that the value of assets under management (AUM) fell by 4% globally in 2018, to about $74 trillion from about $77 trillion, according to the annual report on asset management trends by Boston Consulting Group (BCG), released Wednesday. (All figures are in U.S. dollars.)
The decline was the first significant year-over-year decrease since 2008, and it reversed some of 2017’s increase in AUM of 12%, the report said. North America accounted for two-thirds of the global loss, losing $2 trillion.
The report provided an outlook for asset management in the next decade considering that the market will likely exhibit more volatility, competition and economic uncertainty. It said key trends in the space include further fee erosion as investors move to passive investing, greater digitization, increased flows to China and emerging markets, and an ongoing move toward sustainable investing.
For example, active assets have declined significantly in the last decade and a half, and now account for just $1 out of every $3 in global AUM. That compares to more than $1 out of every $2 of AUM in 2003.
In the upcoming decade, asset managers must use tech to be successful, the report said, particularly in investment management and distribution, where asset managers typically lack capabilities.
“Few firms are genuinely committed to the data and analytics opportunity,” the report said. “We believe that 20% to 30% of asset managers qualify as pioneers, meaning that they are investing in data and analytics with conviction across a broad range of use cases.”
The rest will find themselves playing catch-up, but can potentially see significant progress within six to nine months once they embrace tech, the report said.
It also noted the importance of scale and performance for firm growth—two things that are resulting in a trend toward either distribution powerhouses or “boutique alpha shops.” The latter were described as small, focused firms that concentrate on investment performance, and that harness talent, research and tech to do so.
Managers in the middle will continue to be squeezed, as they’ll “struggle to avoid drifting toward irrelevance,” the report said.
A wild card in BCG’s forecast is potential disruption from digital giants.
“It is easy to imagine Google using consumer sentiment data captured by its various services to predict market or individual stock performance with a heightened level of insight,” the report said. “Similarly, consumers might readily trust a ‘mutual funds sold by Amazon’ offering, complete with reviews and other data that enable them to choose quickly among providers.”
Such disruption would be “rapid and powerful,” it added.
In other data released this week, Boston-based Cerulli Associates said that, to stay relevant, asset managers should embrace the role of asset allocation model providers.
The global research and consulting firm said in a release on Tuesday that such model providers can derive revenue from explicit asset allocation fees, fees on underlying products, increased brand awareness, and stronger relationships with independent broker-dealer distribution partners.
The firm also noted that, with more than $20 trillion in U.S. advisor assets up for grabs, model providers have ample prospects across channels.
Further findings from Cerulli’s research can be found in the July issue of The Cerulli Edge—U.S. Monthly Product Trends Edition.