Scale and specialisation

ETFs and index products are gaining more and more popularity among investors. Still, the Boston Consulting Group claims that this will not put an end to the classic asset management business of selecting investments actively to outperform the market. Still, the industry structure is changing dramatically, says the consultancy.

Since 2002, asset managers have doubled their assets under management to $74 trillion. But inflows have fallen to a level of 1.7 percent yearly while they amounted to 3 to 5 percent before the financial crisis. Despite lower inflows and increasing costs, the industry was able to increase their margin to 0.4%, the level of 2006 and 2007.

Doing so, American firms are much more successful than their European counterparts. While assets under management have increased in both regions by about a third, American firms could increase their revenues and profits above the level of before the financial crisis. European revenues are just about to reach this level again, while profits are still far below their previous level.

For asset managers, scaling is becoming more important - especially in order to compete with cost efficient ETFs. European managers are at a disadvantage, as their home market is still very fragmented by countries. Moreover, investors prefer that Anglo-American asset managers are often independent from other financial institutions and thus exhibit lower conflicts of interest.

Besides scale, specialisation is a key factor to remain competitive, says the Boston Consulting Group. Typical products such as equity funds investing in the largest national corporations, government bonds or money market products are losing market shares. While they accounted for 63 percent of assets under management in 2003, their market share dropped to 39 percent in 2014. Specialised funds on the other hand could increase their market share by 20 percent points to 48 percent during the same period.