Four business models will survive

2015 was not an easy year for asset managers. “In 2015, the asset management industry recorded its worst performance since the 2008 financial crisis,” says the Boston Consulting Group (BCG) in its annual study on the status quo of the asset management industry. Assets under management have increased by only seven percent from 70.5 trillion USD to 71.4 trillion US Dollar. In 2014, a growth of eight percent could be observed while the long-term average since the financial crisis amounts to five percent.

The slow growth of the industry is due primarily to low net inflows of just 1.5 percent of the previous AuM. In the industry, BCG identifies the recent trend not to attract new funds on the basis of a competitive advantage but through capital increases achieved by the positive development of financial markets. However, due to weak and turbulent markets, the industry could not grow through capital gains in 2015. Moreover, the strong US Dollar decreases the value of foreign funds in USD terms.

Especially the retail segment is a driver of growth for asset managers. Retail AuM now accounts for 40 percent of the market, up from 37 percent in 2011. While net inflows from institutional clients were just 0.3 percent of last year’s AuM, the retail segments contributed with inflows of 3.3 percent. Thereby, the retail segment profits from strong growth in private wealth. The institutional business, on the other hand, suffers from clients doing more investment activities in-house, a decumulation of pension funds and outflows from sovereign funds. BCG expects the institutional business to remain weak over the short and medium term.

Especially in the United States, but in Europe too, a trend towards passive investments can be observed. “In Europe, passives were not as strong but still showed solid growth with 5 of the top 15 mutual fund categories,” says BCG. “Overall, we believe that the shift in investor preferences in recent years to passives, solutions, specialities, and alternatives will continue to squeeze the share of traditional active core products.”

Due to the weak markets, rising impotence of the retail segment as a growth driver and the increasing usage of passive investments, asset managers must revise their business models. BCG expects that four models allow for an optimal positioning:

  • Specialised Alpha Shops: With in-depth investment know-how, such asset managers are able to attract investors that are willing to pay high fees for the possibility of a significant outperformance.
  • Beta Factories: With high assets under management, liquidity and a continuous expansion of the product portfolio and investment themes, such passive asset managers provide investors with a cost-effective access to markets.
  • Solution Providers: Such managers focus on specific needs such as services for high-net-worth clients, financial advisors or the needs of specific institutional clients such as pensions funds.
  • Distribution Powerhouse: These asset managers provide products that are “good enough” and market and distribute them extensively and thereby provide investors with a simple access to markets.