Asset managers post strong recovery from crisis: BCG report

India Infoline News Service | Mumbai |

Industry profits in absolute terms surged to US$93bn, and profits as a percentage of revenues also made gains, BCG found

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).
 
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 US$93bn, and profits as a percentage of revenues also made gains, BCG found. Net flows of new assets to managers recorded their strongest postcrisis 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 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.
 
The ‘Two-Speed World’ Shifts to Multiple Speed Lanes
 
“The two-speed world that exemplified the asset management industry in recent years shifted to multiple speed lanes in 2013,” said Tjun Tang, a Hong Kong-based BCG senior partner and a report coauthor. The strong growth of managed assets slowed in many emerging markets in 2013, while it gathered speed in many developed markets, according to the report. In other emerging markets—including many in Asia—it continued to advance robustly.
 
Viewed regionally, AuM growth varied widely in 2013. In North America, the Middle East and Africa, Japan, Australia, and Asia, it increased from 14 percent to 20 percent, according to the report. Europe and Latin America averaged 8 percent and 7 percent, respectively.
 
Global Asset Management 2014, like its predecessor reports, 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.
 

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