Funds industry revenues are expected to grow at just one per cent annually over the next five years, putting into question whether asset management is still a growth sector.
With structural fees set to intensify, investors are urging asset managers and wholesale banks to accelerate growth while keeping down costs, according to a report from Morgan Stanley and Oliver Wyman. Fees are under pressure faster than the market expected.
“The asset management industry stands at a critical junction,” the study claimed.
The sector is facing falling margins and a market environment that is disappointing relative to expectations, according to the research.
The last five years saw the revenue compound annual growth rate set at 4%, bolstered by inflows and asset value appreciation reaching a record $326 billion (€294.3 billion) last year. By the end of the year the industry’s assets under management (AuM) totalled $80 trillion.
“But beneath these headline numbers, there is a growing unwillingness by investors to pay asset management fees,” the report said.
Passive asset management currently accounts for over a quarter of the global AuM. While 2018 saw strong inflows into passive and exchange-traded funds, active products struggled.
“Historically, active managers with the strongest relative investment performance could expect to be rewarded with the lion’s share of net inflows as investors switched managers,” JP Morgan and Oliver Wyman said.
“But increasingly, it appears that investors with poorly performing products are switching out of active asset management altogether.”
According to the research, muted revenue growth over the next five years will be driven by emerging markets clients, private markets, and solutions. The fee pool will grow from 38% to 53% by 2023.
The revenue pool of core active management in developed markets will shrink by over a third during this period and will no longer be the main contributor to industry income.
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