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For Asset Managers, Can a Half-Full Glass Lead to Roaring 2020s?

Ongoing Volatility, Tighter Competition, and Economic Uncertainty Will Bring Challenges, but Opportunity Abounds as Data and Analytics Take Prominence and Firms Target Shifting Client Needs, Says New Report by BCG

BOSTON—Following the first significant year-on-year decline in assets under management (AuM) since the 2008 financial crisis, asset managers have their work cut out for them if they hope to restore positive momentum, attract and maintain clients, and forge an optimal digital strategy for the next decade and beyond, according to a new report by Boston Consulting Group (BCG). The report, titled Global Asset Management 2019: Will These ’20s Roar? is being released today.

This 17th annual study of the global asset management industry by BCG takes a comprehensive look at performance and other key trends, examines factors that are critical to future success, and explores how technology is changing the sector’s landscape—to such an extent that firms unwilling or unable to make the necessary investments may not survive.

“Even after a year as challenging as 2018, asset management is fundamentally on solid footing,” says Renaud Fages, a New York–based BCG partner, coauthor of the report, and global leader of the firm’s asset management segment. “It’s hard to feel gloomy about an industry that generated almost $100 billion in operating profits in a down year. But the glass is only half full—and to keep the profits coming, asset managers must adjust to major changes. The next decade will be about meeting evolving customer expectations, enhancing performance and operational efficiency through data and analytics, and adjusting to the emergence of China.”

Key Trends

The short-term priority for many asset managers will be to restore the positive momentum that lapsed in 2018. The value of assets under management fell by 4% globally in 2018, to $74.3 trillion from $77.3 trillion, reversing some of the benefit of 2017, when AuM increased by 12%. Net new asset flows—the increase attributable to new money coming into asset management firms, minus outflows—amounted to $944 billion, sharply below the 2017 figure of $2.15 trillion in net new asset flows.

BCG expects a number of key trends to dominate the landscape over the next few years:

  • Active management will face an uphill battle against passive solutions and alternatives (especially private assets), and fee erosion will persist.
  • High digital capabilities will be table stakes in most markets. Getting the technology right will require a new strategic agenda and, typically, significant investment.
  • China will become the second-largest region for asset management, ahead of continental Europe, attracting more flows than the US over the next decade.
  • The winner-takes-all phenomenon that BCG discussed in its Q1 review will accelerate as brand, distribution, and scale become ever more critical.
  • Sustainable investing will continue its rise as firms weave environmental, social, and governance (ESG) factors into their investment decisions.

How to Win During the Next Decade

BCG sees two basic paths to success for asset managers. The first path would be to operate as a boutique alpha shop—a small, focused company that concentrates on investment performance. The second path would be to operate as a distribution powerhouse, amassing scale and maintaining advantaged access to customers. These two paths to success are already visible today; but in a winner-takes-all industry such as asset management, their outlines will come into even sharper focus over the next few years.

The wild card with regard to these developments is possible disruption from digital giants—companies whose level of digital expertise and direct-to-consumer marketing prowess goes well beyond what even the largest and best-resourced asset managers can marshal. The giants’ capabilities would in some ways translate well to asset management.

How Data and Analytics Are Changing the Game

According to the report, the impact of data and analytics innovations can be dramatic. On the investment side, firms that are committed to the data and analytics opportunity supplement decision making with alternative data, more precise simulation, and sharper analysis. The changes boost performance and efficiency in sharing and using research. In trading, they deliver better execution and lower costs. Distribution and marketing functions, meanwhile, benefit from deeper analysis, permitting more-personalized offerings and improved resource deployment, and leading to revenue uplifts of 5% to 10%. New modeling approaches inform prospecting, retention, and marketing. Finally, technology helps firms identify and manage bottlenecks and facilitate automation in operations, generating efficiency gains of 15% to 30%. But a global BCG survey of asset managers suggests that only a few firms are genuinely committed to the data and analytics opportunity.

“Ultimately,” says Lubasha Heredia, also a New York–based BCG partner and coauthor of the report, “most industry leaders recognize that data and analytics can serve as tools to sharpen their decision making and upgrade their operational efficiency. But many of them lack the IT resources, data architecture, talent, and cultural readiness to implement changes at the required scale. The result is a rising sense of urgency, and little idea of how and where to invest. But the time to act, and act quickly, is now.”

A copy of the report can be downloaded here.

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

About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact.

To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.

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