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Asset Managers’ Global Growth Surge Sets Stage for Digital Competition

Profitability and Asset Inflows Set Global Records in 2017, as Total Assets Under Management Rose to $79.2 Trillion. Firms Should Use This Windfall to Fund Adoption of Advanced Digital and Analytics, Says a New Report by BCG

/EIN News/ -- NEW YORK, July 19, 2018 (GLOBE NEWSWIRE) -- A surge in global growth by the asset management industry, occurring as advanced digital and analytics are finally going mainstream, has positioned firms to invest in capabilities needed to stay competitive, according to a new report by The Boston Consulting Group (BCG). The study, titled Global Asset Management 2018: The Digital Metamorphosis, is being released today.

Fueled by bull financial markets, asset management’s growth rebounded in 2017. Firms set global records for net inflows of assets and for profitability, according to BCG’s 16th annual report on the industry. Total assets under management (AuM) recorded their strongest growth in a decade.

Reinvesting in Future Growth

“Asset managers would be wise to take advantage of a strong year to reinvest capital and talent in future growth,” said Renaud Fages, a BCG partner, global leader of the asset management segment, and a coauthor of the report. “Most of the bounce-back growth of 2017 was market driven, not structural,” he said. “Cost pressures and fee erosion will persist, especially when equity-market growth slows, as it shows signs of doing in 2018.”

The value of global AuM rose by 12% to $79.2 trillion in 2017, from $71.0 trillion in 2016, the BCG report says. This represents the strongest annual growth since 2009, when assets rebounded from the depths of the global financial crisis the year before.

At the same time, advanced digital and analytics are finally going mainstream across the asset management industry. Nearly every firm now has a digital agenda—hiring technologists, experimenting with new analytics, and testing alternative data.

“Few asset managers, however, have mastered digital and analytics at scale,” said Brent Beardsley, a senior BCG partner, former leader of the asset and wealth management segment, and a coauthor of the report. “That requires significant and sometimes complex organizational change. Most firms will need to adopt agile ways of working to achieve that goal.”

The recent solid performance of asset managers extends beyond a strong showing in business fundamentals, such as AuM growth and profit, according to the report. Firms have also delivered excellent investment returns to their owners, as measured by total shareholder returns (TSR), the standard gauge of gains received by company owners.

Over the past five years, publicly owned asset managers recorded an average TSR of 12%, surpassing the robust performance of global stock markets. The top quartile of asset managers generated average annual TSRs of 20%, compared with an average of 9.1% for asset managers in the other three quartiles, considered as a group.

Analysis Reveals Winners’ Traits

Disaggregating and analyzing the TSR data, the report says, revealed that the most successful firms grew at the same rate as others, but achieved greater profitably by maintaining prices and expanding margins. In terms of product strategy, the most notable winners were either small niche players or very large asset managers with strong growth in passive products.

Passives, in fact, were easily the highest-growth product category in 2017, posting a record 25% increase in AuM. Traditional active products continued to lose share to solutions and specialties. Going forward, the rapid growth of “smart beta”—passive products with an active component—could pose a bigger competitive threat to active management than the broader passives trend.

“Asset managers that choose to join the smart-beta bandwagon now will need to achieve scale and develop an industrialized approach if they want to be competitive,” said report coauthor Hélène Donnadieu, a BCG principal and global manager of the asset management segment.

China and US Lead in Regional Market Growth

AuM grew robustly in regional markets around the world, led notably by China and the US, the BCG report says.

China's 22% growth in AuM elevated it to the fourth-largest global market, up from eighth place five years earlier. The partial opening and rapid growth of the Chinese market, has created the conditions for a potential gold rush among foreign firms.

“We expect China’s AuM to triple by 2025, which—if it comes to pass—would make the Chinese market the second-largest after the US,” said Qin Xu, a BCG partner, leader of the asset management topic in Asia, and a coauthor of the report.

The North American market was the second standout regional performer, buoyed by US growth of 14%, the strongest among mature markets. The European market grew less robustly at 7%.

The benchmarking survey that informed this year’s report drew on 165 leading asset managers representing $48 trillion—or more than 65%—of global AuM, and it covered more than 3,000 data points per player. Our measurements assessed assets in 44 markets globally, including offshore.

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 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 offices in more than 90 cities in 50 countries. For more information, please visit bcg.com.

The Boston Consulting Group
Eric Gregoire
Global Media Relations Senior Manager

Tel +1 617 850 3783
Fax +1 617 850 3701
gregoire.eric@bcg.com

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