How Institutional Investors Will Shape Asset Management Growth

(February 13, 2013) — Individual investors, not institutions, will drive asset management business growth going forward, according to predictions by Casey, Quirk & Associates.

According to the firm, four-fifths of an anticipated US$40 billion of net new revenue over the next five years will be derived from the increasing wealth of individuals worldwide. The rest will come from the institutional investing sphere.

The trend is perpetuated by the transfer among defined benefit and defined contribution schemes out of the institutional space as a result of payouts to participants. Meanwhile, big asset owners, such as pensions and sovereign wealth funds, are increasingly bringing asset management in-house to better utilize scarce resources, with institutions thus taking money out of the hands of professional money managers, Ben Phillips, a partner at Casey Quirk–, a management consultant to the global asset management industry–tells aiCIO. “There’s also growing wealth among individuals, particularly in the emerging market world,” he says. “The number of billionaires has erupted over the next decade.”

More specifically, Casey Quirk’s research also shows that investment managers worldwide will grow less than 1% from net new money annually for the next five years through 2017. “As a result, many asset managers, including some of today’s market share leaders, may struggle with shrinking revenue and a decaying book of legacy business,” according to a new whitepaper from the firm.

The firm’s report–titled “The Complete Firm 2013: Competing for the 21st Century Investor”–notes that most of the industry’s future revenue growth will belong to a select group of firms that can innovate by globalizing their portfolios; incorporating alternatives into their investment strategies; orienting their business toward individuals and their growing demand for solutions; and pursuing opportunities in faster-growing emerging markets.

“Companies that can develop and enhance those capabilities will win 90% of net new revenue available over the next five years,” the firm said. “Most industry firms worldwide will compete for the remaining 10% of net new revenue, while defending their legacy clients from an increasingly zero-sum takeaway game.”