EUROPE - Asset managers were saved by institutional inflows during the crisis but in order to survive it they will have to restructure their businesses, according to management consulting firm McKinsey & Company.
McKinsey in its 2009 global asset management report entitled Will the Goose Keep Laying Golden Eggs? noted third-party assets under management fell sharply by 23% over the last year and continued their decline in early 2009, only coming back to year-end 2008 levels in the summer and having recovered strongly since.
"Equities suffered AuM declines of roughly 30-40% across both retail and institutional segments," the report's authors added, although they recognised that institutional markets, in general, proved more resilient than retail markets.
Institutional assets represented 70% of managed assets, making up $18.2trn (€12.2trn) globally. according to McKinsey. "Half of survey participants had institutional inflows, while only a third had retail inflows", although the UK was the only exception to this trend, the report suggested.
In Europe, the Dutch and Belgian markets proved most resilient as asset managers in these locations saw only a 11% drop in assets under management, mainly as a result of their institutional focus and "a fairly conservative asset mix", McKinsey suggested.
"In the Netherlands, for example, fiduciary management continued to gain in importance, while the growth of Spezialfonds in Germany was an important source of inflows," the report continued.
McKinsey noted that stable inflows from the pensions sector as well as the continued rise of sovereign wealth funds were still the most important factors facing asset managers.
Moreover, whereas retail profitability is still four times higher than institutional profitability, "retail revenue margins shrank more than those on the institutional side".
The study also revealed: "Most of this decline comes from lower performance-related fees, a shift in the asset mix towards less risky and lower margin products, and to distributors taking a greater share of the gross fees from asset managers."
Managers therefore need to "revisit sacred cows" and look at pricing, business model and product/asset class mix, claimed McKinsey.
"Pricing remains an underused lever, but across-the-board price increases will be increasingly hard to implement."
The consultancy therefore suggested "more sophisticated pricing techniques" should be used, which would give investors a real understanding of the cost structure by product type, or adjust pricing to customer price elasticity.
Asset managers were also advised to upgrade their risk management capabilities.
When asked which global scenario for asset management recovery they thought was most likely, two-thirds of those questioned said they favoured a "battered but resilient" market, similar to the prolonged recession of the 1970s "where full AuM recovery would take four to seven years".
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