BCG, new profits and AuM records in the asset management industry

According to a new report by The Boston Consulting Group, worldwide AuM grew to $74 trillion in 2014, the third consecutive annual record, and the industry’s profit pool rose to match its historic peak of $102 billion. But pressure on fees rose

Asset under management is one of the most profitable business in the world, but the growth of the assets and the record of the profits continued to be largely the result of rising asset values on global markets rather than new asset flows. Moreover, client pressure on fees impacts on net revenues, that continue to rise but
less than in the past. So, according to a new report by The Boston Consulting Group (BCG), “growth is not a given”.
According to BCG’s thirteenth annual report of the asset-management industry, titled Global Asset Management 2015: Sparking Growth with Go-to-Market Excellence, worldwide assets under management (AuM) grew to $74 trillion in 2014, a third consecutive annual record, and the industry’s profit pool rose to match its historic peak of $102 billion, achieved before the financial crisis.

“The 2014 performance shows that the industry has moved beyond the dynamics of the postcrisis period but also that it faces a challenging new environment – said Gary Shub, a Boston-based BCG partner and a coauthor of the report – Asset management continues to rank among the world’s most profitable businesses, and it’s a growing one for managers that get it right.”
The growth rate is lower than 2013 (13%), but it confirms the incredible period that the industry is living. “The AuM’s growth is mainly due to the great market performances seen in almost all asset classes, that achieved high levels if comparted to past averages – Edoardo Palmisani, Project Leader di The Boston Consulting Group added – Net new assets are only about 2% of the worldwide assets under management”.

Moreover, this isn’t the first year that fee pressure has contributed to declining revenue margins. Institutional investors are monitoring fees more closely, challenging and renegotiating them, BCG study found. The report is the product of market-sizing research and an extensive benchmarking survey. The benchmarking involved 135 leading asset managers, representing $39 trillion, or 53%, of global AuM, and covered more than 4,000 data points per player.

Product continue to shift to passives
Why did the revenues grow less than the AuM? “There are two main factors: a growing competition on prices and the grow of passives products (ETF), which are less profitable than traditional actively managed products”, Palmisani explained.
According to the report, the AuM of traditional active products represented 39% of AuM at the end of 2014 compared with 59% in 2003, while alternatives grew from 6% to 11%, passive products from 8% to 14%, solutions from 6% to 13% and specialties from 21% to 24.
“Managers face a future in which growth isn’t a given – added 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 – Achieving growth will require managers to ramp up their execution and generate more value from their commercial go-to-market capabilities—notably in marketing, sales, and pricing”. Many of the most effective managers focus on three capabilities: marketing effectiveness, sales force productivity, and enhanced customer experience.

The growth by region
According to BCG’s study, in terms of growth by region, Europe’s net flows rebounded for the first time since the crisis, catching up to those in the U.S. In this area, growth was driven by Spain and Italy, but Scandinavian and German markets also achieved solid advances, the report said.
Asia-Pacific remained the fastest-growing region, led by China and India. This is an area with high potential. According to the authors of the reports, the industry’s growth in Asia-Pacific will be increasingly driven by wealth and retirement savings. Asia – and particularly China – is on the verge of a shift toward retirement offerings, reflecting demographic trends and upcoming pension reforms.
Asia-Pacific, excluding japan overtok Europe in 2014 to become the world’s second-wealthiest region with $47 trillion. With a projected $57 trillion in 2016, Asia-Pacific is expected to surpass North America (a projected $56 trillion) as the wealthiest region in the world.