Asset Management Is More Lucrative Than Ever, Consultants Say

Asset management is one of the most profitable businesses in the world, but some managers will have to step up their game to find growth going forward.

According to the Boston Consulting Group (BCG), the industry’s total assets hit a record high of $74 trillion in 2014 and profits soared 7% to $102 billion.

But, BCG warned, the bull market drove substantial growth, rather than new asset flows.

Net new assets remained low at 1.7%, well below pre-crisis levels.

Asset management’s net revenue growth also faltered in 2014, down to 7% from 9% in 2013, the report said, as both institutional and retail investors put pressure on fees.

“What we’re starting to see is asset managers taking a more sophisticated approach to fees,” Brent Beardsley, senior partner at BCG, told CIO. “The most sophisticated managers are continually assessing fees—it’s active management of pricing.”

Because investors are increasingly reevaluating fee terms—some of which have never been adjusted or revisited in 10 years—managers are also lowering cost growth below asset growth, BCG said.

In addition, investors’ preference for passive products from traditional active options is also putting pressure on fees and pricing, the consulting group argued.

And the industry is likely to become even more competitive and challenging going forward.

“Managers face a future in which growth isn’t a given,” Beardsley said. “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.”

However, the industry’s profitability may be limited to only a number of players rendering these improvements and efforts useless.

According to BCG, the top managers in mutual fund flows also captured the majority of new asset flows—and this “winner-takes-all” phenomenon only increased in the US last year.

Data revealed the top 10 US managers—including Vanguard, BlackRock, and Dimensional Fund Advisors—gained 68% of all flows in 2014, compared with 53% in 2013.

Related: When Are High Management Fees Worth It?; The Fees Conundrum: Prices Rising… and Falling; London versus Laos

Additional reporting by Nick Reeve.