In 2015, the asset management industry recorded its worst performance since the 2008 financial crisis. Growth in assets under management (AuM) stalled, and net new flows of assets, revenue growth, and revenue margins all fell. Fee pressure on managers continued to rise.
Tepid markets and turbulence, which persist in 2016, are today’s reality. That becomes clear at the outset of this report, The Boston Consulting Group’s fourteenth annual study of the asset management industry worldwide. A summary of financial performance and a discussion of competitive trends in this article emphasize that asset management continues to rank among the world’s most profitable businesses. At the same time, the results highlight the continuing dependence of many managers on rising financial markets to boost asset values rather than on long-term competitive advantage to generate net new flows.
Market-driven asset growth is in the rearview mirror. That gives asset managers an opportunity—and a mandate—to assess the real state of their business and the step change in capabilities required to prevail when market growth isn’t a given.
As they do so, it will become increasingly clear that competence in advanced data and analytics will define competitive advantage in the industry in the not-too-distant future. Today’s managers face a fundamental and indisputable need to support their investment processes by developing increasingly advanced capabilities in these digital technologies. The alternative, for most firms, is to risk becoming irrelevant and trailing others in the ability to generate superior investment returns.
Armed with these cutting-edge techniques, asset managers have the potential to gain a significant information arbitrage advantage over their peers and are positioned to understand, monitor, and fend off the growing array of risks that confront managers, their clients, and the global financial system.
Designing a comprehensive approach to risk management is crucial now. As the views of managers and regulators converge, firms have a clearer path to their next risk investments. This report’s discussion is informed by extensive additional benchmarking, including measurement of key capabilities defining a comprehensive risk management function.
While the strategies that guide investment decisions have evolved considerably over the years, the tools and analyses underlying them have remained largely the same. Now, however, the wave of new digital technologies, techniques, and data brings huge potential advantage. Crucial to that endeavor is the development of a target operating model, the blueprint of an asset manager’s ideal future state. Once considered the province of just a small subset of alternative managers, advanced technologies that include machine learning, artificial intelligence, natural-language processing, and predictive reasoning are beginning to join the mainstream. They’re giving fast-moving firms and financial-technology providers the ability to model scenarios that push the boundaries of traditional analytics, and they’re delivering targeted insights with unprecedented precision and speed.
This report, like its predecessors, is the product of market-sizing research, an extensive benchmarking survey, and insights gathered from our activities in the marketplace. The benchmarking involved nearly 140 leading asset managers—representing $40 trillion, or more than 55%, of global AuM—and covered more than 3,000 data points per player.
The more detailed assessment of the risk management function in this year’s survey included measurements of fundamental capabilities that define the risk management function, such as governance, scope, organization, data, and systems; a review of the organizational model; and detailed benchmarking of risk management staffing and spending.
The aim of our annual research is to provide new insight into the state of the industry and its underlying sources of profitability to help managers build prosperous paths to the future.