Asset managers may have experienced their best performance since 2010 last year, but they cannot afford to take their eye off the ball according to one advisory firm.
Preliminary data from Boston Consulting Group (BCG) shows that global assets under management grew by 14 per cent in 2017, as net new inflows of cash stood at 4.3 per cent and asset manager revenues jumped by nine per cent.
But BCG added that the positive figures were largely down to the bull market in equities increasing the value of assets already under management and attracting much of the new money, and that they were masking increasing pressures in the industry.
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"Asset managers can celebrate the industrys best year since 2010. But they should not let it blind them to the underlying trends that are putting pressure on their margins," the BCG report stated.
"Top players will continue to capture a larger share of net inflows as rapid advances in technology increase the need for scale in asset management."
Added to that, fees are being squeezed. BCG found that they had fallen by an average of three per cent per year over the past four years, as costs rose and managers were forced to lower prices to attract large institutional investors with massive bargaining power.
"Costs are being pushed up by new regulations and by the need to invest in new technology," the report added.
"If current trends hold, average profit margins will fall from 38 per cent to 36 per cent over the next three years. If markets correct, we expect them to drop to 30 per cent, though they could fall as low as 27 per cent."
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New rules such as the second Markets in Financial Instruments Directive (Mifid II) have emphasised the need for transparency over fees, meaning investors are increasingly pushing for managers to justify what they are being paid.
However BCG brushed aside the much-touted line that increasingly popular passive index-tracking funds, which are much cheaper, were causing the reduction in fees for active managers.
The report found that although they acted as a downward pressure on active managers' fees, the shift within active management towards more expensive technology-based strategies mostly countered this.
To stay ahead of the game, however, BCG recommended that asset managers make "some bold moves" including "radically overhauling technology, entering new markets, and making acquisitions".
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