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May 07, 2018

Global AUM shows strong growth

But underlying trends are putting pressure on margins

Global asset managers last year experienced their best performance since 2010, according to new report The Hidden Pressures on Asset Managers published by London-based Boston Consulting Group (BCG).

The report shows that global assets under management (AUM) grew by 14 percent in 2017, as new inflows of cash stood at 4.3 percent and asset manager revenues increased by 9 percent.

The S&P 500 index grew by 19.5 percent in 2017, with other major equity markets doing similarly well: Japan’s Nikkei was up 19 percent and gains in major EU markets ranged from 6 percent to 17 percent. 

However, BCG says the positive figures are largely a result of the bull market in equities increasing the value of assets already under management and hides real and increasing pressures in the industry.

‘Asset managers can celebrate the industry’s best year since 2010. But they should not let it blind them to the underlying trends that are putting pressure on their margins,’ the report’s authors warn. ‘Top players will continue to capture a larger share of net inflows as rapid advances in technology increase the need for scale in asset management.’

In addition, fees are being squeezed - thanks in part to Mifid II slowly taking hold. BCG finds that fees have fallen by an average of 3 percent per year over the past four years.

‘Costs are being pushed up by new regulations [particularly Mifid II] and by the need to invest in new technology,’ the authors observe. ‘If current trends hold, average profit margins will fall from 38 percent to 36 percent over the next three years. If markets correct, we expect them to drop to 30 percent, though they could fall as low as 27 percent.’

On another market development, BCG dismissed the much-discussed narrative that cheaper and popular passive index-tracking funds were causing the reduction in fees for active managers.

The report states: ‘Contrary to conventional wisdom, the migration of AUM from active to passive products is not the main driver of reduced average fee income. This does indeed put downward pressure on average fees, but it is being offset within active products, where AUM are flowing to alternatives and solutions, the highest-fee products.’ 

To stay ahead, BCG recommends that asset managers make ‘bold moves’ including ‘radically overhauling technology, entering new markets and making acquisitions.’

The report covers 30 asset managers representing $34 tn AUM, or roughly half the global industry.