European asset managers are experiencing weaker growth while their costs are surging, which could dent profits amid a downturn in the financial markets, according to McKinsey & Co.’s annual survey.
Institutional assets under management among European managers in 2006 totaled €6.6 trillion ($9.6 trillion), up 14% from the previous year. In 2005, institutional assets increased by 20%, according to the survey of 118 European managers surveyed in the first half of 2007. Aggregate retail assets under management jumped 8% to €3.4 trillion in 2006, compared to a 14% gain the previous year. Market performance accounted for two-thirds of the growth for all assets in 2006.
Total profits rose by about 20% in 2006 to €16 billion, according to the survey. But costs are rising faster than assets in Europe. At an average of about 19 basis points in 2006, cost margins were more than 10% higher that year than in 2000. “With cost margins nibbling away at potential profits, many players could be caught with largely inflexible cost structures” in a difficult economic environment, according to an analysis of the survey by McKinsey. “Profits could fall by as much as 30% in 2008.”