The future of asset management in North America

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In this year’s report, we examine the impacts of the unusual macroeconomic environment of 2020 on the North American asset management industry. The real economy in North America has shown remarkable resilience. The past year began with a sharp drop in COVID-19-induced GDP and skyrocketing unemployment, followed by a return to economic hibernation. But the pace, scale and scale of monetary and fiscal responses prompted a strong recovery in mid-year, with US GDP returning to 2019 levels in the second quarter of 2021. The rebound was even more pronounced in Financial markets: After a 34% drop in US stock markets in March 2020, stock prices have risen steadily to reach 34% above their pre-COVID-19 highs in late August 2021.

The asset management industry benefited from this rapid rebound, with the industry’s economy posting a record year in 2020: Based on pure growth in assets under management (AUM), 2020 was the second best year since the financial crisis, and the global industry hit a record high of $ 115 trillion. In addition, growth went beyond asset appreciation: new net client flows reached an impressive 2.7% of assets under management at the start of the year.

In North America, assets under management increased by 13% in 2020, including new net flows of 2.3% (well above the average of the previous five years). Organic growth was widespread, with five of the seven major customer categories posting positive net flows.

Industry profits hit a new high of nearly $ 73 billion (coin), despite an acceleration in the shift to lower-cost asset classes and vehicles in 2020. Expense compression has increased slightly at 3%, compared to around 2% per year in recent history. . Finally, the industry’s cost base grew by $ 8 billion, at a faster rate than in the years before the pandemic: 6% versus a long-term average of 4%. Overall, revenues and operating profits increased by 7% and 9%, respectively (compared to growth in assets under management of 13%).

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The 2020 gains were not shared equally: as in years past, the rising tide of the markets failed to lift all of the managers’ boats. The companies showing the best growth were a mix of large, diverse managers playing across different investment styles and asset classes, and specialists focusing on a particular asset class or set of investment strategies.

Compared to five years ago, the growth and profitability gap between the best and the rest has widened. Regarding operating margins, long-term net flows and revenue growth, the gap between the upper and lower quartile manager for each measure has widened, especially for long-term net flows and growth. revenues.

This performance gap is clearly reflected in the valuation by public markets of asset managers. The multiples of traditional asset managers have been under pressure since 2018, decoupling from the rising valuations of the broader S&P 500. However, the top quartile of traditional publicly traded asset managers trades on average at a premium of around 50% over the industry as a whole. Since 2018, the multiples of companies specializing in investing in the private market have increased to demand an even higher premium.

On the customer and product side, 2020 has surprised. . . with a lack of surprises. The new net flows have remained resilient, and long-standing trends in product demand across asset classes, investment styles and vehicles have remained largely in place, or accelerated, in 2020 and 2021 to date. For example, active stocks remained under pressure while fixed income continued to show widespread growth.

From a vehicle perspective, ETFs have been a clear winner. New net flows to ETFs reached $ 508 billion in 2020, a record that had already been broken in July 2021, supported by exuberant stock markets, investor enthusiasm for new strategies launched in ETF formats and the growth of the emerging active ETF market.

In private markets, fundraising has resumed with renewed vigor after a brief hiatus during lockdowns. Investors express a continued interest in most private market asset classes, particularly infrastructure, private equity and private debt, as part of the search for alternative sources of return and return in a debt regime. lower interest rate for longer.

Amid this picture of continuity, the pandemic and its second- and third-order effects have sown important seeds of change for the North American asset management industry. Eight trends that have accelerated over the past 18 months will define the industry’s new growth horizon in the 2020s.

  1. Thematic investment—Giving investors access to opportunities outside of traditional asset classes and industrial sectors — has found a receptive audience with committed individual investors and institutions seeking opportunities
  2. Durability– not only as a corporate social responsibility, but also as an essential consideration for the allocation of capital and a source of return
  3. The next act for ETFs—As a channel for revitalizing active management, driven by investor demand for ease of access, tax efficiency and the active view of asset managers
  4. Technology-based mass customization (managed accounts, direct indexing, fractional stock trading) – expand access to value propositions that have typically been the preserve of institutional and high net worth investors
  5. The rise of digital assets fueled by an army of new retail investors freed from traditional investment thinking, opening the door to institutional participation in new sources of return “off the beaten track” and between asset class lines
  6. Emergence of “alternative alternatives “—The broadening of the universe of private markets, including “core” and “opportunistic” approaches in private equity and real estate, and the rise of yield-oriented asset classes such as credit private and real assets
  7. Democratization of private markets as a function of demand (individual and high net worth investors and their advisers looking for new sources of return) and supply (large private market companies investing in intermediate retail distribution, product vehicle innovation and the emergence of fintech platforms focused on private market distribution)
  8. Integration of digital distribution—Accelerated by the pandemic, raising the bar for asset managers to deliver superior sales and service experiences to customers across all channels

Our belief in the growth potential of the North American asset management industry has increased. On the contrary, the disruptions discussed in the full report (available for download on this page) expand the options for the industry. The addressable market for North American asset managers is huge: In 2020, global financial assets totaled $ 422 trillion, of which only a third is managed by third-party asset managers. The expanse of unclaimed space offers enormous opportunities for asset managers who can deliver superior investment performance, as well as innovative solutions that meet changing investor demands. Asset managers looking to thrive in this dynamic environment must adopt the mindset of an attacker rather than the defensive stance of an incumbent and reposition themselves before the change.


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