Asset management remains profitable, but managers must work hard to stay relevant as technology and the popularity of passive products change the industry, according to research from Cerulli Associates.
“Asset management remains a profitable business, but managers must continue to adapt to stay relevant as new fund delivery solutions come to the fore; competition in the passive space continues to eat away at profit margins; and end investors’ expectations around fund costs, fund packaging, and fund delivery increase,” Barbara Wall, managing director at the Boston-based research firm, said in a statement.
To keep costs under control, managers continue to look for ways to improve operating efficiency, including investment in technology. Many are considering how they can retain existing customers and capture new revenue streams in the context of the emergence of new fund delivery solutions from fintechs and retail banks, as well as growing fee pressure.
“Track record and heritage will always stand managers in good stead,” adds Wall, “but a more targeted marketing strategy that leverages social and digital media will go a long way toward helping them stay in the game.”
Many managers are broadening their product ranges to capture new revenue streams and to offset some of the problems they are experiencing as a result of their reliance on equities and bonds. Lending to corporates has increased and liquid alternative fund launches have surged. In the passives space we are seeing an increased focus on smart beta-a product area that will be hotly contested by both active and passive managers.
Global assets under management (AUM) increased to a record US$76.9 trillion in 2015, Cerulli Associates’ Global Markets 2016: Growth Through Reform and Innovation report finds. This figure is expected to continue to rise over the coming years, reaching US$104.7 trillion by 2020 according to Cerulli’s forecasts.
The U.S. and Europe remain the largest contributors to mutual fund AUM, but the fastest growth region is still Asia ex-Japan, which grew its mutual fund AUM by 12.7 percent from 2014 to 2015. This increase was led by China, with a year-on-year growth of 60 percent. The future for Asia ex-Japan is bright: Cerulli’s forecasts suggest that the region will chart a compound annual growth rate (CAGR) of 12.3 percent out to 2020.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
