Asset managers had a better overall year in 2010 than in 2009, confirming the rebound from the global financial crisis. But building on the recovery and achieving a stable growth trajectory will remain a tall challenge, according to a report by The Boston Consulting Group (BCG).
According to the report, Building on Success: Global Asset Management 2011, the global value of professionally managed assets rose by 8 percent to $56.4 trillion in 2010.1 The increase—which followed a gain of 13 percent in 2009 and a decline of 17 percent in 2008—was driven principally by the continuing recovery of equity markets, with net new inflows remaining marginally positive.
There was wide regional variation in AuM expansion in 2010, the report says. Latin America, with an increase of 18 percent, posted the strongest growth. In North America, AuM rose by 8 percent, led by the United States (8.5 percent). AuM in Europe rose by 7 percent, with considerable variation across countries. Japan and Australia, the two largest markets in the Asia-Pacific region, posted a combined AuM increase of 2 percent (1 and 4 percent, respectively), while AuM rose by 11 percent in the rest of Asia, slower than in the precrisis years.
The further recovery of AuM in 2010, along with a shift in asset structure, translated into improved profitability for asset managers. Average revenue margins rose to 29.8 basis points, up from 29.0 basis points a year earlier. Many players were also able to hold the line on costs, which remained at roughly 20 basis points in 2010. Ultimately, profit margin as a share of net revenues reached 33 percent, up from 31 percent in 2009 but still below the historical peak of 39 percent achieved before the crisis.
Although higher overall profitability has contributed to slower consolidation among asset managers—there have been fewer large deals since the beginning of 2010 than there were in 2009—the process of consolidation will still continue, the report says.
Kai Kramer, a BCG partner and a coauthor of the report, says that despite the continued recovery, asset managers still have their work cut out for them. “Economic uncertainty lingers,” he noted. “Investors are becoming ever more demanding, and the full potential of money in motion will be difficult to capture. The question of how to achieve further growth in both mature and emerging markets is a daunting one. Asset managers will need to forge thoughtful strategies in order to build on the successes we have seen.”
According to the report, the financial crisis, by introducing great market uncertainty and calling traditional investment beliefs into question, made investors more likely to scrutinize and challenge the investment decisions made by their asset managers. Although markets have improved, the pressure from investors—both institutional and retail—for performance and transparency has not let up.
Many product shifts observed before the crisis began have continued through 2009 and 2010 and into 2011. One key ongoing trend is the faster growth of passively managed and alternative products, compared with actively managed products.
The report further says that there are different sets of challenges for different markets along the entire asset-management value chain. Mature markets such as North America, Europe, Australia, and Japan—where penetration of some asset-management products is stagnating—will likely grow at a modest pace overall. Developing markets such as Latin America and many parts of Asia will likely grow at a faster pace, albeit from a much lower base of regional and domestic AuM.
In order to pursue growth in home markets, the report says, asset managers need to take concrete steps. These include developing crystal-clear value propositions, which amid virtually limitless investment choices can be a true differentiator; focusing more on the end customer, because relatively few asset managers have fully exploited opportunities to better understand what private investors really want in terms of products, services, and preferred channels; and streamlining the product portfolio, as many asset managers tend to keep underperforming products “on the shelf” too long.
To pursue growth across borders, asset managers must first develop a clear view about which markets they would like to enter given their current capabilities and resources. Just as important, they must accurately assess the level of competition in the new market. Finally, they must decide where they do not want to be in terms of regions, products, and client segments.
“Surprisingly,” says BCG’s Kai Kramer, “some asset managers begin their foreign-expansion initiatives without fully addressing these basics.”
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