* No new net money for asset management industry in 2011
* Successful firms adapting to passive investing preferences
* Vanguard leads with $77 billion in net flows, study says
By David Randall
NEW YORK, Sept 13 Stalling growth rates and a
move toward passive investing could put the profitability of the
asset management industry at risk, according to a Boston
Consulting Group report released Thursday.
For the third straight year since the financial crisis,
firms in the $58 trillion asset management industry failed to
attract significant levels of global new net assets in 2011, the
Higher levels of cash holdings and a push toward passive
index funds on the part of retail investors- a combination that
analysts have called "the new normal" - are behind the
flatlining industry growth rates, said Monish Kumar, a senior
partner at BCG.
"If you are an asset manager, you'd much rather be in the
old normal than the new," he said.
Firms that have adapted to shifting investor preferences
toward passive or alternative strategies have been able to
benefit disproportionally, he said.
In the United States and Europe, Vanguard, BlackRock
, Pimco and J.P. Morgan were among only a handful
of top firms with positive growth rates. Vanguard, which has
built its brand around low-cost index funds, led all firms in
the report with $77 billion in net inflows in the United States,
followed by $37 billion in positive flows for BlackRock and $25
billion for Pimco.
The industry lost $1.1 trillion in assets in North America
overall, and $808 billion total in Japan and Australia. Assets
in Asian countries outside of Japan grew by $731 billion, the
largest of any region, followed by a $540 billion increase in
assets in Latin America.
With operating margins at 34 percent, the global asset
management industry remains one of the more profitable branches
of financial services, the study found. But the move away from
active management on the part of the retail investors - a
segment that has traditionally been one of the most profitable
spots in the industry - are putting pressure on firms to lower
costs to invest, the study said.
Costs for most retail investors fell 3.1 basis points in
2011. Margins will likely continue to slide toward 30 percent,
driving an up to 15 percent decline in profits, BCG noted.
The declining margins will likely lead to an increasing
"winner take all" industry, Kumar said, as small and mid-size
managers find themselves unable to attract new assets unless
they have a highly-rated mutual fund or similar distinct
offering that clients will be willing to pay for.
"This may be a good time for smaller managers to sell,
especially if they think the value of their businesses will be
worth less five years from now," he said.
In the United States, the largest investor net inflows went
to intermediate-term bond strategies, followed by target date
funds and world allocation funds. In Europe, global bonds and
U.S. bonds had the largest net inflows.