Advisers Fret a Lower-Return Future

New research from Casey Quirk by Deloitte shows that index-linked and multi-asset-class investment strategies attracted more than 90% of net new money invested worldwide last year.

According to the 2016 Performance Intelligence Asset Management Benchmarking Survey, conducted by Casey Quirk by Deloitte in partnership with consulting and benchmarking firm McLagan, negative returns from global capital markets contributed to low growth overall during the year. 

“Global assets under management [AUM] 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 [bps], or 0.501%, from 51.4 basis points, or 0.514%, in 2014.” 

Even more troubling, the research reveals that operating margins at asset managers also fell, from 34% in 2014 to an estimated 32% last year. While margins are still ostensibly high and healthy, a 2% annual drop 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 AUM, “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 indicates that 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, the research says.

According to the survey, new investments into alternatives slowed to just 8% of total net flows in 2015, down from 10% in 2014.

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