Boston Consulting Group has a new report out concluding that, “The asset management industry has achieved its strongest year of growth since the onset of the financial crisis.”
As always, the consulting firm’s annual report on global asset management is a dry, number-laden and utterly fascinating look at the business of overseeing money. Ignore the boring title, “Global Asset Management 2014: Steering the Course to Growth” and instead focus on the cold, hard dollars.
They are enormous, beyond big.
In 2013, managed assets rose to a record $68.7 trillion. This year is on pace to see a further increase. Before the financial crisis in 2007, total assets were $54.7 trillion. Considering all that has occurred in the intervening years, the asset management business looks quite healthy.
Check the following chart: Net revenue rose 11 percent, edging past the 2007 total. Profit rose as well, to $93 billion, a 17 percent gain from 2012, though still lower than the $100 billion of 2007.
Asset management is among the world’s most profitable industries, according to the data. Operating margin, or profit as a percent of net revenue, rose to 39% percent last year from 37 percent the year before. That’s impressive, though it doesn’t quite match the 41 percent margin reached in 2005 through 2007.
Hence, based on earnings of $93 million and a profit margin of 39 percent, my back-of-the-envelope calculations suggest industry revenue of $238 billion. This explains the big salaries and even bigger bonuses.
These are impressive numbers. But the recovery of the financial industry, and indeed, its expanding prosperity, is a much more complex and deeper story than the numbers suggest. We can point to at least three trends that are helping to push assets under management and revenue to records.
There is no doubt that a steady cost squeeze, increased productivity and more software automation have helped the industry. But let’s step back and look at the bigger picture: