Though assets under management (AuM) grew by 15% in 2019, economic turmoil from the pandemic will force asset managers to adapt in a number of ways, according to Boston Consulting Group’s annual report on the asset management industry.
Global AuM grew by 15% to reach $89 trillion in 2019, up from $77 trillion in 2018. Retail clients accounted for 42% of global assets ($37 trillion) and saw 19% growth, while institutional clients accounted for 58% and grew 13% to $52 trillion. Market performance was the primary growth driver, as markets across the globe posted record highs for the period since the 2008-2009 financial crisis, according to BCG.
North America, the largest asset management region, saw the strongest growth in 2019, with AuM increasing 19% and adding $6.7 trillion in value. The AuM expansion in North America was driven by quantitative easing, strong consumer spending, and low unemployment. AuM growth in the rest of the world was also strong, at between 11% and 13%.
The report also highlighted the strength of the alternative asset class – which includes private equity and venture capital, hedge funds, managed futures, art and antiquities, commodities, and real estate.
Alternatives accounted for nearly half of global asset management revenues in 2019, despite representing just 16% of AuM. BCG projects that alternatives will grow at an annual rate of 4% to 2024, to a level of 17% of AuM and 49% of revenues. Drivers for this growth include investor demand for better performance, uncorrelated returns, and illiquidity premiums.
The consulting firm noted that challenges lie ahead, however. The global economic downturn will lead to liquid investable capital declining sharply, while also driving a short-term flight to safe-haven assets.
To retain clients and emerge from the crisis in a strong manner, asset managers will have to offer a competitive edge in one of several ways. They can offer performance, by delivering better results; cost, by delivering equal results for lower fees; or better overall client experience. Performance and cost-based models have historically dominated the industry, according to BCG.
Those that select client experience will engage in a transformative strategy, which includes data-driven business intelligence; a digital organization; realigned sales and marketing; upgraded product development (e.g. products tailored to environmental, social, and governance investing); and a client-centric culture (e.g. with compensation tied to increased customer satisfaction).
“Overall, the market storm of early 2020 has only intensified the industry’s challenges, as asset managers find themselves in uncharted territory,” said Lubasha Heredia, a New York–based BCG partner and coauthor of the report. “After the crash of 2008, the asset management industry benefited from a market rebound that produced the longest bull market in history. In 2020, however, firms must recover flows and profitability through more fundamental changes to their business models. This is both a challenge and an opportunity to accelerate and shape what the future of asset management could look like.”