* 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 study found.
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.