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To Survive, Asset Managers Must Transform the Very Way They Work

Slow Growth, Shrinking Revenues, and Disruptive Change in the Global Asset Management Industry Threaten Players That Don’t Commit to Tech-Driven Innovation and Bold New Opportunities, According to a New BCG Report

NEW YORK—Traditional asset managers must adopt advanced data technologies to innovate and transform the very way they work in order to survive and prosper, according to the 15th annual study of the industry by The Boston Consulting Group (BCG). The report, titled Global Asset Management 2017: The Innovator’s Advantage, is being released today.

The global asset management industry faces growing challenges that were confirmed by its performance in 2016, the BCG report notes. For the first time since the 2008 financial crisis, worldwide revenues of traditional managers fell, as did profits. Moreover, margins contracted as pressure on managers’ fees continued to rise. Investment outflows from traditional active products persisted.

Five Key Opportunities

The BCG report highlights five opportunities for asset managers to make significant gains while coping with their industry’s difficult and shifting environment:

  • Innovation and excellence in managing the overall business portfolio
  • Adoption of advanced data and decision-making technologies
  • Structural cost management
  • Gaining entry to the Chinese market and other pockets of fast growth
  • Strategic M&A to achieve a winning business model

“Success in the future will require managers to identify opportunities, move boldly, and transform the very way they work” said Brent Beardsley, a BCG senior partner, the global leader of the firm’s asset and wealth management segment, and a coauthor of the report. “Firms that lack a sustainable source of advantage will struggle to survive.”

The industry’s 2016 performance was the second consecutive year of weak results, the BCG report notes. Global assets under management (AuM) of traditional managers, stagnant in 2015, returned to growth in 2016—rising 7%, to $69.1 trillion. But the increase was largely due to asset appreciation in global financial markets. Net new flows, the industry’s wellspring of organic growth, were a tepid 1.5% of beginning-of-year AuM, little changed from recent years.

The environment will remain challenging, the report says. The decade-long migration of investments from traditional active-core assets to passives, alternatives, specialties, and solutions will persist, squeezing traditional assets and shrinking their share of revenue and AuM. The advance of disruptive technologies will accelerate.

The Necessity of Tech-Driven Innovation

To escape these traps, managers will need to earn advantage through tech-driven innovation and excellence in managing their entire portfolio of products and businesses, the report says.

“Tomorrow’s industry leaders will appear quite different from today’s,” said Renaud Fages, a BCG partner and a coauthor of the report. “Success will require fully embracing digital and technology innovation—especially in investment management and distribution functions. Accelerating disruption from big-data and machine-learning technologies will be game changers.”

Improving operational efficiency will also be important, but it won’t be enough, according to the report. Winning managers will differentiate themselves by managing costs on a structural basis.

“With shrinking margins, asset managers will need to act to address costs more structurally—whether they take advantage of automation technology or leverage third-party resources,” said Hélène Donnadieu, a BCG principal and a coauthor of the report.

Another growth opportunity cited by the report is the rapidly evolving market of China, which has opened new entry paths for foreign players. China is the notable exception to the slowing global growth of asset management, according to the report. Chinese AuM grew 21% in 2016, driven by net new flows of 17%.

“China’s retail market and customer experience are quickly going digital,” said Qin Xu, a BCG partner and a coauthor of the report. “Global players should focus on learning to collaborate through digital channels here. Keen data and analytics capabilities will also be critical for accelerating growth.”

The report Global Asset Management 2017, like its annual predecessors, is based on BCG’s market-sizing research and an extensive benchmarking survey that covers fees, products, distribution channels, and costs to provide insights on the industry’s underlying sources of profitability. This year’s benchmarking covered 153 leading asset managers holding $43 trillion of assets, or 62%, of global AuM—and covered more than 3,000 data points per player. The research, including insights gathered from the firm’s work with clients, focused exclusively on assets that are professionally managed for a fee.

A copy of the report can be downloaded at http://on.bcg.com/2sKJP0V.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

ABOUT THE BOSTON CONSULTING GROUP

The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 85 offices in 48 countries.

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