Double-digit growth extends winning streak in asset management
Assets Under Management Grow 12% as Net Flows Set Record and Earnings Rise; Disruptions are expected as new trends emerge, According to the Boston Consulting Group report
BOSTON, May 25, 2022 /PRNewswire/ — The asset management industry continued its unprecedented growth trajectory in 2021, with global assets under management (AuM) growing 12% to $112 trillionsignificantly above the 20-year growth average of 7%, according to a new report from Boston Consulting Group (BCG). Net debits also reached record levels, at 4.4% of total assets under management (see table). The report, titled Global Asset Management 2022: favorable winds for turbulence— the 20th edition of BCG’s annual study of the industry — is released today.
Strong equity market performance has been the main driver, accounting for 90% of revenue growth between 2005 and 2021. Over the same period, income from net flows has been more than offset by investors shifting their combination of asset classes towards lower priced products and by continued pressure on fees. Yet, despite rising costs, operating profit margin reached a healthy 38% in 2021, up from 36% a year earlier, as average growth in assets under management outpaced cost increases.
The passive market, which exploded after the financial crisis of 2008 in particular, continues to arouse strong interest from investors. By 2021, assets under management for passively managed products had increased more than four times the rate of their actively managed counterparts since 2003. The passive space has become increasingly concentrated, however, with almost 75% of all new capital over the last 5 to 10 years. flowing into the top 10 global players, compared to around a quarter of positive net new inflows into the active market. As a result, the active market currently offers players more opportunities to differentiate themselves.
“The incredible market run that has fueled the performance of the asset management industry for the past 15+ years has been a double-edged sword,” said Chris McIntyre, CEO and Associate of BCG, co-author of the report. “On the one hand, this has provided strong tailwinds to the sector, but it has also challenged innovation, allowing the market to be dominated by legacy products that benefit from the compounding effect of the returns of the underlying assets. There are signs that these trends are starting to change, and the ensuing turmoil is an opportunity as well as a challenge for industry players.”
Emerging trends that are expected to shape the future include an increasing shift of portfolios to alternative assets in pursuit of higher returns relative to publicly traded markets. Alternative products accounted for less than 20% of global assets under management in 2021, but they constituted more than 40% of total asset management revenues. This trend is expected to continue over the next five years, with alternative revenues expected to reach more than half of all global industry revenues by 2026.
Moreover, with 100 trillion dollars for $150 trillion In deploying the capital needed to achieve net zero goals by 2050, the demand for sustainable investments represents an opportunity that will dominate the sector in the short and long term. Roughly 20 trillion dollars for $30 trillion is expected in bond and equity allocations for asset managers, much of which will be concentrated over the next few years as more investment flows into climate transition projects.
Finally, new technologies such as direct indexing put the fundamental value proposition of asset managers at risk of disintermediation by simplifying the manufacturing and packaging process, allowing new participants to enter the market. and create personalized products that they can bring directly to their customers. This is especially the case for wealth managers, resulting in growing convergence between the asset management and wealth management industries, both of which are beginning to seek out the same pools of assets.
“The asset management industry is at a crossroads,” said Hanka Mörstedt, co-author of the report. “While the new trends that are blooming in the industry are likely to cause disruption, they are also an opportunity for players who position themselves early and take advantage of new emerging ways to earn.”
Download a copy of the report here: https://www.bcg.com/publications/2022/tailwinds-to-turbulence-for-global-assets-under-management
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or [email protected].
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