Many publicly traded fund management firms worldwide are demonstrating higher profitability, though UK firms are behind in revenues.
Research shows that quoted managers delivered their highest median profit margins in five years last year.
However, UK firms trailed counterparts elsewhere in the world by producing lower revenue growth. UK firms have been less innovative at building beta products, says Casey, Quirk & Associates – though this is only one reason for the UK lag.
Research by the firm, which is a management consultancy, shows that quoted managers globally produced a median profit margin level of 33% and median revenue growth of 13% in 2014.
However, 40% of UK firms suffered a decline in revenue and saw median revenue growth of just 3%.
The 62 quoted managers in the analysis held about $14.3 trillion (€13.2 trillion) in assets under management. The universe is comprised of 33 US-based firms, 10 domiciled in the UK, eight headquartered in Canada, seven based in Australia, three from continental Europe, and one from Japan. The universe includes 12 investment managers focused on alternatives.
The median revenue growth rate achieved by the managers was exceeded only in 2013 and 2010 in the past five years.
In 2014, managers in the US, Canada, and Australia had double-digit median revenue growth rates and the percentage of listed firms with negative revenue growth was smaller.
“Many UK firms remain aligned with slower growth buyer segments and geographic regions,” said Jeffrey Levi, a partner at Casey Quirk. “They have not been sufficiently aggressive at building new active and innovative beta capabilities or repositioning against higher-growth markets creating headwinds in firm growth. That being said, we are seeing some UK firms making significant investments to take advantage of key opportunities.”
A total of 76% of all listed firms in the Casey Quirk analysis saw net new flows last year, but almost one-quarter suffered net outflows. Six firms saw the majority of the flows.
Alternatives managers, for the fifth consecutive year, garnered more net new flows than their traditional counterparts.
“Business complexity is at an all-time high,” Levi said. “Managers are being challenged by both buyers and shareholders in a lower growth environment. Buyers want highly tailored outcome-oriented solutions while shareholders want to see significant cash flow generation through more scalable offerings. Product development and delivering a distinctive client experience will be critical for success.”
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