Paris—In 2022, assets under management fell by $10 trillion globally, a 10% drop from 2021, to $98 trillion, close to 2020 levels This represents the second largest annual decline in assets under management (AuM) in twenty years.
After this “dark year”, however, a recovery is expected. This is revealed by the BCG in its new report “ Global Asset Management 2023: The Tide Has Turned”, which analyzes the underlying trends in this sector. Here are the main lessons:
- Pressures on the asset management sector have increased over the past year and are weighing on its profitability. There are six trends :
- Equity market growth over the long term will be more limited: global equity market returns for the past ten years have approached their all-time highs, notably stimulated by the hitherto accommodating central bank policies. While an improvement is likely, revenue growth linked to the market effect will still be significantly reduced in the coming years compared to long-term history.
- Passive funds are gaining ground: passively managed investment products were the main beneficiaries of inflows. The share of passive exchange-traded funds (ETFs) and other passive products has increased from 20% in 2012 to 41% in 2022.
- At the same time, the pressure to reduce management fees persists and is accelerating: over the last ten years, average fees have fallen by more than 15%.
- Gone are the days when asset managers’ costs increased in line with asset growth: their cost structure (mainly related to payroll and personnel) is now significantly out of step. 60% of asset management costs are fixed. A reduction estimated at 20% is expected to return to historical levels of profitability.
- The share of new products that pass the mark of the decade is lower: investors have a clear preference for products with proven reliability, since 75% of the assets under management of mutual funds and ETFs are invested in products having at least ten years of track record. But less than 40% of all products launched ten years ago still exist today. The observed phenomenon of product proliferation is therefore not synonymous with lasting innovation.
- Finally, the new accounting standards for insurers, which came into force at the start of 2023, call on asset managers to adapt their practices to better support their insurance clients.
- Existing pressures and market expectations are such that, without real change from asset managers, their earnings growth could reach half of that of recent years (5% against 10%). Asset managers will have to transform their model in depth, based on the “3 Ps” which are:
- Profitability, i.e. a robust and solid plan to tackle their cost structure and finance this transformation;
- Development on high-growth private markets (“private markets”) , in order to significantly diversify the sources of income and rely on the new distributive prospects of these products;
- The personalization of products and services (“personalization”) , to innovate in terms of customer relations.
