More Consolidation Ahead for Asset Managers

Consolidation looms for some asset managers as revenue declines continue to outweigh steep cost-cutting measures.

A McKinsey survey found that although asset managers have seen inflows for the first time since the first half of 2007, net margins are set to fall to 9 basis points in 2009 from 10.8 bps in 2008, Reuters reported. The declines came after assets slumped and clients switched to low-cost products.

 “Although all asset managers understand the gravity of the situation, too few have reacted with sufficient vigor and fundamentally restructured their business models,” McKinsey director Pierre-Ignace Bernard said, according to Reuters.

Regulatory proposals in India and Britain to abolish fixed distributor commissions could lead to asset managers, rather than customers, paying, and this could raise the asset manager’s capital requirements, the report indicated. McKinsey said opportunities in developed markets lie in increasing longevity and the tendency of older populations to accumulate more assets on which they seek a safe return.

Even so, asset managers will find their best opportunities in emerging markets, where the number of middle class savers with high savings ratios is growing rapidly and where the penetration of financial products is still very low, according to Reuters.

The drive to cut costs will spur a wave of consolidation, which in turn will produce opportunities, with recent deals indicating synergies of 5% to 20% of the target’s revenues and a large share of the target’s costs can be achieved.

“Those who are aggressive and opportunistic stand to gain significant value from the next deal wave,” said McKinsey, according to the news report.

The latest survey is based on data from more than 300 firms with 13 trillion euros ($19. 1 billion) in assets under management, representing 50% of the global industry.