European asset managers boost profits – study

EUROPE - European asset managers were able to moderately improve their profitability and efficiency last year, according to a new study by the German arm of consulting firm McKinsey & Co.

According to the study, European asset managers boosted profit margins to 12.7% in 2003 from 9.6% in 2002.

McKinsey said the improved profitability had to do more with the firms’ retail business than with their institutional business, although institutional assets under management posted a higher increase than retail AUM – 15% and 12%, respectively.

The study also showed that cost-income-ratios, a key measure of the asset managers’ efficiency, dropped to 61% in 2003 from 68% in 2002. McKinsey praised the development, saying that for the first time in several years, costs did not rise but remained at the same level in 2003 as in 2002.

But the results for 2002 and 2003 sharply contrast with those from the boom years of 1998 to 2000. Back then, profit margins of European asset managers ranged between 21% and 25%, while cost-to-income ratios were between 38% and 42%, according to the study.

McKinsey’s German arm also observed that it would be very difficult for European asset managers, especially larger ones, to further boost profitability in 2004. Martin Huber, head of asset management consulting in Germany, cited two reasons for this.

Beyond the current uncertainty on financial markets, institutional investors were increasingly snubbing large asset managers in favour of specialist boutiques, said Huber.

McKinsey’s study of European asset managers is compiled on an annual basis and encompasses 112 houses. These houses have an estimated four trillion euros in AUM, representing 60% of the total for Europe.

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