Increased profitability and growth in the money management industry is giving firms the opportunity to invest in the digital and analytical tools necessary to stay competitive, a Boston Consulting Group report concludes.
The money management industry enjoyed strong growth in the calendar year 2017, with assets under management growing 12% to $79.2 trillion, the firm said in its study, "Global Asset Management Study 2018: The Digital Metamorphosis."
A report on the study said the increase represented the strongest annual growth since 2009, when assets had rebounded from "the depths of the global financial crisis the year before."
This growth was accompanied by a surge in net new asset flows: net inflows totaled 3.1% of total assets under management at the beginning of 2017, about $2.2 trillion, vs. net inflows equivalent to 1.5% of $69.1 trillion in 2016 — about $1 trillion. BCG said net inflows were also the strongest since the crisis.
Managers also enjoyed "record profitability" in 2017, with profit margins growing 1.4 percentage points to 37% of net revenues. That compared to profit margins of 35% of net revenues in 2016.
The report, BCG's 16th, said money managers should use the windfall afforded by increased profits to prepare for the future.
"Asset managers would be wise to take advantage of a strong year to reinvest capital and talent in future growth," said Renaud Fages, a BCG partner, global leader of the asset management segment and a co-author of the report, in an accompanying statement. "Most of the bounce-back growth of 2017 was market driven, not structural. Cost pressures and fee erosion will persist, especially when equity market growth slows, as it shows signs of doing in 2018."
Digital and analytics are now mainstream for money managers, with firms hiring technologists and experimenting with analytics and alternative data, the report said. "Every asset manager we engage with these days has a digital and analytics agenda."
Across different strategies, passive was the highest growing category in 2017, with a 25% increase in assets under management year-on-year to $16 trillion.
Assets under management in China also grew, up 22% for the year to $4.2 trillion. "The partial opening of the Chinese market, combined with its rapid growth, has created the conditions for a potential gold rush among foreign firm," the report said. The firm expects growth in Chinese assets under management to triple by 2025.