Global assets under management surged to record levels last year as investment groups took advantage of the powerful bull run in equities and put the debilitating effects of the financial crisis behind them.
However, management consultants Boston Consulting Group made clear in its annual report on the industry that the growth was largely a result of rising equity markets, rather than new investment flows. Net new flows of 1.6 per cent are a modest part of total growth.
They also warned that regulation, changing customer demands and rapid advances in technology are making it harder for traditional investment groups to survive.
Total assets under management increased 13 per cent to $68.7tn in 2013 compared with 2012, according to BCG.
Gary Shub, a BCG partner, said: “Asset management continues to rank among the most profitable industries, with operating margins close to their pre-crisis heights.”
Big active management groups, such as Schroders and Aberdeen Asset Management, are feeling the pressure from the march of passive investment funds, which are increasingly attracting customers as they cut fees to the bone.
Schroders, for example, is seeking news ways of collating data and has even employed Britain’s head cycling coach Shane Sutton to advise its top fund managers on how to improve performance by concentrating on their strengths.
Asset management profits in absolute terms grew to $93bn in 2013, a 17 per cent rise from $79bn the year before. Despite the advance, the global profit pool still lagged 7 per cent behind its historic peak before the financial crisis.
Most of the new money also flowed into relatively new products such as investment solutions, which offer clients a set income by combining portfolios of stocks and bonds, rather than traditional asset classes such as equities.
The report identified regulatory change, the data revolution, more demanding customers, new competitors and globalisation as five “disruptive trends” for traditional asset managers as they try to hold on to clients and profits.
Tougher competition and more demanding customers are raising the bar on service as asset managers need to shift focus from selling products to solving client problems, the report concluded.
Investment groups such as Schroders, Henderson Global Investors and Investec Asset Management have beefed up their multi-asset businesses, which offer client solutions.
Looking at a regional perspective, AUM growth varied widely in 2013. In north America, the Middle East and Africa, Japan, Australia, and Asia, increases ranged from 14 per cent to 20 per cent, according to the report. In Europe and Latin America increases averaged 8 per cent and 7 per cent, respectively.
The BCG report covers 43 major markets, representing more than 98 per cent of the global asset management market. The research focused exclusively on assets that are professionally managed for a fee.