Boston Consulting Group: Asset Managers Rebound From Worst of Global Downturn

For managers, success in the post-crisis era will be an uphill battle

The global asset management business rebounded strongly in 2009, but managers face formidable obstacles in their quest to return to the growth trends and profitability levels that preceded the financial crisis, according to a new study by The Boston Consulting Group (BCG). The report, "In Search of Stable Growth: Global Asset Management 2010," was released July 20.

Last year, the value of professionally managed assets rose by 12% to nearly $53 trillion, the report said. The recovery followed a 17% decline in professionally managed assets in 2008 and average annual growth of 12% from 2002 through 2007. On average, assets under management (AUM) in 2009 rose by 11% in North America, 12% in Europe, 7% in Japan and Australia and 25% in the rest of Asia. Latin America showed growth of 22%. Globally market impact was the chief driver of asset increases, with new net inflows accounting for only about 1%.

The BCG study found a shift toward equity and fixed income AUM in the global asset mix in 2009, and away from money market funds, hybrid assets, structured products and alternative investments. Retail assets grew by 14% to $21 trillion, while institutional assets increased by 10% to $32 trillion.

Despite the increase in value of global AUM, average assets under management and the economics of asset managers deteriorated for the second year in a row. Average AUM in 2009 declined by 4%, net revenues by 11% and operating margins by 19%. Managers reduced overall costs on average by 7% in 2009.

BCG found big differences across asset managers in terms of revenues, costs and profits in 2009. Although two-thirds of managers reduced overall costs, less than one-fifth boosted their profitability. These managers typically were able to increase revenues and to attract huge inflows while maintaining price levels, thanks to their

recognized product experience. According to the study, the top 20% of competitors in terms of net inflows attracted a whopping 88% of net sales in 2009 (and represented only 23% of AUM), while 37% posted outflows.

The study reported that investors' sophistication continue to grow in 2009, prompting them to demand more of their managers. Scrutiny of asset managers' and financial advisors' performance has increased. Products and pricing are in flux.

BCG predicted that with higher anticipated levels of AUM and better expected product mix than in 2009, average profits margins may rebound to as much as 35% of net revenues in 2010, up from about 31% last year. Emerging markets could represent more than 25% of net sales between 2010 and 2014. Mature markets, meanwhile, will continue to experience relatively low growth.

The BCG study concluded with a list of actions it said asset managers should consider, regardless of their specialties, size and location:

? Because they have fewer resources at their disposal today, managers must make bolder choices about products, target markets and distribution, and focus on what they do best.

? Anticipating a potential expansion abroad, manages must first assess and fortify their positions at home. Then, they must honestly assess their strengths and weaknesses and determine which new markets best fit their skill set and the competitive and regulatory environment in those target markets.

? Because a well-thought-out and well-executed M&A can contribute significantly to achieving competitive advantage, senior management should always be open to potential good fits in thinking about growth options.

"Whether we're talking about fast-growing Asian markets, for example, or retirement markets in mature economies, opportunities still abound for asset managers," Kai Kramer, a BCG partner and leader of the firm's global asset management practice, said in a press statement. "Despite highly uncertain times, stable and substantial growth is achievable."

Michael S. Fischer (msf7@columbia.edu) is a New York-based financial writer and editor and a frequent contributor to WealthManagerWeb.com.

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