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Money Management

Money management industry sees drop in revenues, profits in 2016 despite 7% AUM gain — report

The global money management industry felt the impact this past year of the growing challenges it faces, even as assets under management grew, according to a study from Boston Consulting Group.

Assets under management totaled $69.1 trillion as of Dec. 31, up 7% from the previous year's total of $64.6 trillion, primarily due to market gains. Net new inflows remained primarily flat at 1.5% of beginning-of-the-year AUM, the same as the previous year.

On a regional basis, AUM increased in all regions except for the Middle East and Africa. North American AUM increased to $33 trillion in 2016, up 6% from the year before. European AUM increased 7% to $18.4 trillion; Asia, excluding Japan and Australia, increased 16% to $6.6 trillion; Japan and Australia increased 4% to $6 trillion; Latin America increased 14% to $1.5 trillion; and the Middle East and Africa remained flat at $1.3 trillion.

Brent Beardsley, senior partner and managing director at Boston Consulting Group, said in a press briefing that this is the first year since the financial crisis the firm has seen revenue and profit decline in the industry.

"Despite all that growth and the market appreciation, revenue and profit in the industry were down and that was primarily due to fee pressure."

He cited the "continuing shift away from traditional core active strategies," and mentioned that even in more specialized asset classes such as small-cap equities, emerging markets or high yield, "people are going passive."

Net revenues fell to $112 billion from $114 billion, a 1.8% decrease from the year before. The last time revenue dropped was from 2007 to 2008, from $100 billion down to $80 billion.

Net revenues, as a share of assets under management, fell to 26.7 basis points in 2016 from 28.1 basis points, while operating profits as a share of net revenues fell to 38% from 39%.

"In the alternative space, it's really a shift toward more and more illiquid asset classes," Mr. Beardsley said, citing asset classes such as private equity, real estate and infrastructure, in an attempt to gain revenues. Alternative strategies, despite accounting for only 15% of total assets under management, according to the study, contribute 42% of total revenues.

BCG cites five opportunities for money managers to make significant gains in an environment where it is nearly impossible to gain both assets under management and revenues. They cite adoption of "advanced data and decision-making technologies;" entry into the Chinese market; strategic mergers and acquisitions; structural cost management; and "innovation and excellence in managing the overall business portfolio."