(August 2, 2012) — Profit margins among money managers are at risk and remain below pre-crisis levels, according to a survey.
While operating margins in the global asset management industry have recovered from their 2009 lows, at a median 32% in 2011, they remain below pre-crisis levels, according to a joint survey by Casey, Quirk & Associates, the US Institute, and McLagen. The survey found that profit margins are at risk as the industry faces headwinds from choppy capital markets and tepid revenue growth in traditional asset categories. While profit margins have been managed by controlling compensation and benefits expense, managing costs will not sustain current profit margins into the future, the analysis concluded.
“Though ingredients for past success are no longer sufficient in today’s environment, asset managers that adopt the critical future success characteristics we’ve outlined can succeed in growing revenue and maintaining strong profit margins,’’ said Jeb Doggett, partner at Casey Quirk.
According to the analysis, completed by 96 money managers worldwide overseeing approximately $21 trillion in assets, successful asset managers will need to focus on growing revenues by maintaining a number of characteristics, including the following:
1) Investments – unique alpha skills, benchmark-tracking
2) Sales and marketing – technically-skilled client interface
3) Talent recruitment and retention
“These findings, based on one of the largest industry surveys of asset management economics, should be a wake-up call to asset management firms,’’ said Fred Bleakley, director of the US Institute. “While still highly profitable, the industry will be challenged as never before.’’
The study concluded that alternative investments will help to sustain growth of the money management industry. By 2016, alternatives, including hedge funds and funds of hedge funds, private equity, real estate, and commodities, will represent 40% of total asset industry revenue and 17% of assets under management (AUM). By contrast, in 2000, alternatives generated 9% of industry revenue and 3% of AUM, the study said.
Furthermore, the analysis found that emerging markets in Latin America, Asia (excluding Japan), and the Middle East are expected to present asset managers with the biggest opportunities for new funds from institutional and retail investors.