New research from Casey Quirk by Deloitte shows index-linked and multi-asset class investment strategies attracted more than 90% of net new money invested worldwide during 2015.
According to the “2016 Performance Intelligence Asset Management Benchmarking Survey,” conducted by Casey Quirk in partnership with McLagan, a provider of compensation consulting services and pay and performance data for the investment management industry, negative returns from global capital markets contributed to low growth overall during the year.
“Global assets under management barely rose to an estimated $69 trillion in 2015, from $68 trillion in 2014,” the firms report. “Additionally, industry revenue slid to an estimated $344 billion from $346 billion in 2014, with aggregate average fees declining to 50.1 basis points, or 0.501%, from 51.4 basis points, or 0.514%, in 2014.”
Even more troubling, the research shows operating margins at asset managers also fell, from 34% in 2014 to an estimated 32% last year. While still ostensibly high and healthy, a 2% annual drop in margins should worry any prudent business owner about what the future might hold, the research argues.
Of the firms surveyed with more than $10 billion in assets under management, the survey shows “only 56% reported positive net flows in 2015, compared with 60% one year earlier and 63% in 2013.” In comparison, 44% reported net outflows last year, against 40% in 2014 and 37% in 2013.
“Individual investors—increasingly skeptical of active management, fee-sensitive and outcome-oriented—are the drivers of industry growth,” explains Jeffrey Levi, a principal with Casey Quirk by Deloitte. “Through 2020, individual investors are projected to generate 90% of all new money invested, with 10% from institutions.”
The survey further shows flows into lower-margin passive strategies globally doubled in the past two years to reach 72% of the total invested in 2015. As a result, traditional active strategies suffered outflows in 2015 against gains in 2014, and more net new money flowed to multi-asset class strategies—24% of the total compared with 18% in 2014, according to the research.
NEXT: Slowdown in alternatives
According to the survey data, new investments into alternatives slowed to just 8% percent of total net flows in 2015, down from 10% in 2014.
“Many traditional active managers must adapt because their business models are outdated in a world in which individual investors and their need for advice are the revenue generators,” Levi suggests. “Fees are under increasing scrutiny, and regulatory pressures are on the rise. This shifting marketplace will in turn drive greater convergence in the industry across wealth management, asset management, insurance and financial technology.”
The research concludes that asset owners’ buying preferences are “increasingly diverging as the industry shifts from a product to an advice-orientation.” Four buyer archetypes are emerging—outcome oriented, cost conscious, those influenced by gatekeepers, or those interested in investment quality, Casey Quirk by Deloitte argues.
Survey data suggests the largest group, those who favor traditional investment quality, account for roughly half of industry assets under management, but are projected to shrink in the future. The other three groups will see the majority of growth, researchers predict.
“Winning asset management firms will need to reorient their business propositions, investment capabilities and distribution organizations around one or more of these buyer segments,” according to Adam Barnett, a partner at McLagan. “Asset management firms need to recognize that although the battle for average talent is over, the war for top talent remains fierce, and they must intensify their focus on performance management.”
Additional research and information are at www.caseyquirk.com.