NEW YORK, NY -- 07/06/09 --
Global asset managers, reeling from declining
asset pools and client attrition, must take bold steps to strengthen their
businesses if they hope to weather the current financial crisis and gain
competitive advantage for the postcrisis era, according to a report
released today by The Boston Consulting Group (BCG).
The new report, "Conquering the Crisis: Global Asset Management 2009,"
BCG's seventh annual study of the global asset-management industry, draws
on a detailed benchmarking of leading competitors. The report also includes
a comprehensive market-sizing study covering 32 countries (representing
more than 95 percent of the global asset-management market), as well as a
detailed analysis of the forces that are shaping the fortunes of the
industry worldwide.
According to the report, the value of professionally managed assets fell
globally by 18 percent to $48.6 trillion in 2008. This sharp decline
followed average growth of 12 percent per year from 2002 through 2007.
Sliding equity markets around the world were the primary driver of the
decrease, with only a few countries emerging relatively unscathed.
The report says that deteriorating industry economics will force asset
managers to live with lower profits in the future. The average profit
(operating margin) of asset managers fell to 34 percent of net revenues at
the end of 2008 -- the lowest level in five years -- from 38 percent a year
earlier. A more complete profit impact will be felt in 2009, with average
operating margins likely falling to 30 percent or lower. Overall, about 80
percent of asset managers suffered profit declines in 2008, while about 70
percent witnessed revenue decreases as well.
The report highlights the fact that the subpar performance of many products
that were recommended by investment advisors has led some investors to
question both their advisors' judgment and the products themselves. The
overall damage has been worse than that inflicted by the bursting of the
dot-com bubble early in the decade because more investors have been hurt in
asset classes presumed to be reliable. In the future, institutional
investors will require more product transparency and will not be willing to
pay higher fees for actively managed products that deliver returns similar
to those of passively managed products. Retail investors will also be
looking for greater product transparency and more insightful advice.
Regulators, for their part, will be scrutinizing the investment industry
far more closely. Ultimately, BCG says, asset managers must face the fact
that investor trust has taken a severe hit that may take years to repair.
Emphasizing the point that asset managers must prepare for all potential
market developments, the report describes three possible scenarios for the
future: Armageddon (the most pessimistic), Recovery (more optimistic), and
Happier Days (the most optimistic). The report says that several factors
will determine which scenario -- or any number of variations thereof --
actually comes to pass. First and foremost will be the state of financial
markets. Other factors include the evolving health of the overall
financial-services sector and the changing regulatory climate.
In any event, BCG says, certain industry trends such as the following will
remain important for some time to come:
The Reevaluation of Products. From an asset allocation standpoint, the
winners since the crisis began have been money market funds (which
benefited from more than $1.5 trillion in net inflows from the beginning of
2007 through 2008), exchange-traded funds, and savings deposits. Going
forward, the market should also see a continuing decline of long-only
equity products, as investors review their risk versus return profile;
growth in fixed-income products, as pension funds move assets into less
volatile securities with the retirement of baby boomers; an increasing
shift into passively managed products; a shakeout in alternative products
(which will nonetheless remain an important asset class as investors seek
diversification); and increased interest in tailored investment solutions.
Consolidation. We will see a higher degree of industry consolidation as
more large financial groups exit the asset management business in order to
focus on other activities -- and because many need capital. Also, the
report says, in a hypercompetitive market, subscale players or those with
weaker value propositions will have no option but to leave the business.
This situation will allow some asset managers to consider M&A options in
order to reinforce core businesses or move into markets that were
previously seen as too expensive or closed.
Industrialization. Some M&A activity will be driven by an industrialization
logic, as more asset managers create "factories" for their traditional
range of funds in order to gain scale advantages. In some of the recent,
large consolidation deals -- typically between players with geographic or
product overlaps seeking cost synergies through integration -- it has been
interesting to note that traditional scaleable businesses have tended to
get industrialized.
Finally, according to the report, many asset managers have already reacted
to the crisis by taking various initiatives aimed at protecting their
business and positioning themselves for the postcrisis era. Yet the current
downturn may deepen further and last longer than previous crises have.
Despite some signs of economic recovery, the question of the moment
concerns which additional steps asset managers should take in order to
prepare themselves for any possibility. In BCG's view, asset managers
should adopt the following initiatives:
-- Prepare for the worst possible market scenario
-- Redefine the core value proposition of their business models
-- Strengthen their core value propositions
-- Continuously refine their operating models
-- Leverage acquisition opportunities
To receive a copy of the report or arrange an interview with one of the
authors, please contact Alexandra Corriveau at +1 212 446-3261 or
corriveau.alexandra@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 in all sectors and regions to identify their highest-value
opportunities, address their most critical challenges, and transform their
businesses. 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 66 offices in 38
countries. For more information, please visit www.bcg.com.
