Global Product Portfolio and AI Moonshot Operations Director - GAMMA
Related Expertise: Wealth Management, Insurance Industry, Data and Analytics
The growing challenges confronting asset management were confirmed by the industry’s global performance in 2016. For the first time since the 2008 financial crisis, the revenue pool of traditional managers fell worldwide, along with their profits. Margins contracted as fee pressures continued to increase.
Assets under management (AuM) returned to growth, largely thanks to rising asset values on financial markets. Net new flows, the industry’s wellspring of growth, remains tepid and little changed from recent years.
In 2017, the environment remains challenging, with the specter of continued outflows from active products and even esoteric long-only asset classes. Meanwhile, the acceleration of new, disruptive technologies will create opportunities for some asset managers while posing threats to others.
With that in mind, we argue in this report that tomorrow’s industry leaders will appear quite different from today’s. To be among them, asset managers will need to seize opportunities to act boldly and transform the very way they work, through innovation that fully embraces advanced technologies such as artificial intelligence, machine learning, big data, and analytics. This will be especially true in investment management and distribution.
Understanding and pursuing opportunities embedded in big market moves will also define success—whether through M&A, partnerships, or gaining entry to promising new markets, such as China. Finally, acting to address costs structurally will differentiate winning managers, whether they take advantage of automation technology or leverage third-party resources.
Those that succeed in making these changes will consolidate their position. Others will increasingly struggle with disruption and turbulence.
These conclusions are among the central themes of this report, The Boston Consulting Group’s 15th annual study of the global asset management industry. They are the result of market-sizing research, an extensive worldwide benchmarking survey, and insights from our client work and other industry activities.
Like its predecessors, this report opens with a detailed and data-based profile of the industry’s overall state of health. It reviews asset management performance, globally and by region, as well as emerging product and competitive trends. The opening chapter concludes with a discussion of the five sources of the most significant gain for players in the years to come: growth in China, product portfolio management and innovation, business models and mergers and acquisitions (M&A), technology, and cost management.
The second and third chapters of this report assess two topics critical to every asset manager’s future growth. The second chapter explores the benefits of optimizing investment management for the digital age. Investment management stands at the crossroads of success and failure as firms race to enhance investment performance while achieving customer-driven innovation, technological prowess, and heightened operational efficiencies.
The third chapter explores the strategic value—and dangers—of M&A for asset managers. As the industry’s economics become more difficult, M&A activity will likely accelerate. Deals will become bigger and more international, raising the stakes and the challenge of postmerger integration.
As a result, M&A opportunities will abound for firms to acquire the scale, products, expertise, and distribution channels needed to leapfrog to higher levels of prosperity—but so will the dangers of forming a catastrophic “marriage.” We look at how firms can avoid the pitfalls of bad partnering and use M&A to close the gap by adapting one of four business models that offer the potential for sustainable success.
Failure to act decisively—whether in revamping investment management or optimizing M&A opportunities—will especially dim the prospects of asset managers that cling to traditional active assets. The decade-long migration from their legacy products will continue, as it did in 2016.
Traditional active core assets will be squeezed, losing share of revenue and AuM. Alternatives, solutions, and specialties will continue to generate strong fees, while passives will persist in dominating the growth of AuM, if not revenues.
In an environment of uncertain market growth, weak net inflows, and diminishing fees, it will be impossible for all asset managers to thrive. In our view, success will be limited to organizations that earn advantage through innovation and excellence in managing their entire portfolio of businesses. Winning players will include those that fully embrace advances in data and analytics to achieve superior investment performance. They will excel at structuring solutions and invent compelling client service while keeping costs under control.
The benchmarking survey that informed this year’s report involved 153 leading asset managers—representing $43 trillion, or more than 62%, of global AuM—and covered more than 3,000 data points per player. Our measurements covered assets in 43 markets globally, including offshore.
The assessment of investment management included a review of organizational structures for investment, research and trade execution functions, benchmarking of costs and staffing, and deep dives on innovation, customization, and best-practice use of technology and tools.
The aim of our annual research is to provide new insight into the state of asset management and its underlying sources of profitability in order to help managers build prosperous paths to the future. We hope you find it useful.