Skip to main content
MENU
Subscribe
  • Sign Up Free
  • LOGIN
  • Subscribe
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Face to Face
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2023 Defined Contribution East
    • 2023 ESG Investing
Breadcrumb
  1. Home
  2. MONEY MANAGEMENT
November 17, 2011 12:00 AM

Outlook for money manager profits in 2011 is dimming

  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Money management firms' pretax operating profits likely will be flat or fall in 2011 because of market declines and increased expenses, spoiling expectations earlier in the year of a full pre-crisis recovery, according to a survey by McKinsey & Co.

    “Market volatility and the renewed risk of financial earthquakes in the second half of 2011 not only put a damper on these rosy expectations, but also called into question some of the industry's assumptions concerning the inevitability of profitable growth,” according to a report on the survey of 300 money managers.

    In 2010 the money management industry's pretax operating margins had rebounded by five percentage points to 27%, just shy of the 10-year average of 28%. “It seemed possible the good old days were making a comeback,” the report said.

    McKinsey's key finding from the survey was the increasing variability among individual firm's profits. The report said the top quartile of money managers earned an average operating profit margin of 46% in 2010, approximately 40 percentage points higher than the bottom-quartile of the industry.

    The top performing asset managers reduced costs by one-third between 2007 and 2009 by leaving, or reducing their exposure to, low-margin businesses. Those money managers saw their costs relative to assets increase by 0.3 basis points, but saw growth of 33% in pre tax operating margins, McKinsey found.

    In contrast, the report said, “depressed and in denial” asset managers that failed to act through the crisis belatedly cut costs in 2010 by around 3%.

    The market gains in 2010 helped money managers in this group improve their profit margins in 2010, but they continued to lag the industry and they lacked the resources to invest in their growth, the survey found.

    Another issue, McKinsey found, is that costs in the money management industry for the past two years have outpaced revenue growth, reaching record-high levels by the middle of this year. The report said that most money managers' costs grew an average of 11% in 2010 and the first half of 2011.

    The root causes of higher costs, according to the report, were increases in staff, average compensation, technology and outsourcing.

    While almost all money managers can have good and bad years in terms of net new flows, only about 20% of the more than 300 surveyed have sustained above-average net new flows and growth for a decade, the survey found. For example, from 2002 to 2007, less than 50% of money managers were able to sustain growth that was above the five-year weighted compound annual growth rate of 14%.

    The survey found investment performance clearly matters to overall growth, but that it only explains just more than a third of net new flows over the past decade.

    While none of the growth leaders had poor investment performance, none had the best, either, the report said. Rather, money managers that had superior net flows combined solid, sustained investment performance, business model advantages (often aided by M&A or strategic shifts) and explicit resourcing decisions about where and how to compete, the survey said.

    The McKinsey report said independent money managers have outperformed bank- and insurance-owned firms on growth over the past decade because of M&A and a greater ability to recruit and compensate talent through the crisis.

    Independent asset managers held 54% of assets under management of the firms surveyed in 2011 compared with 28% in 2002, according to the report. The survey was based on research conducted by McKinsey in 2010 and 2011.

    Related Articles
    Russell: Managers expect more market volatility in 2012
    M&A deals about the same, but dollars involved down
    Artisan, Tweedy Browne, Fidelity managers win Morningstar honors for 2011
    Recommended for You
    dailey_geoff_2014_750-main_i.jpg
    BNP Paribas Asset Management chooses next head of U.S. equities
    Tandean_Vida_head-main_i.jpg
    CBRE Investment Management appoints Asia head for indirect private real estate
    Naim Abou-Jaoude
    New York Life Investment Management names new CEO
    Research for Institutional Money Management
    Sponsored Content: Research for Institutional Money Management

    Reader Poll

    January 25, 2023
    SEE MORE POLLS >
    Sponsored
    White Papers
    Show Me the Income: Discovering plan sponsor and participant preferences for cr…
    The Future of Infrastructure: Building a Better Tomorrow
    Fulcrum Issues: Equity Returns and Inflation — Choose Your Own Adventure
    What Matters Most in Considering a Private Debt Strategy
    Why pursue direct lending in the core middle market?
    Research for Institutional Money Management
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    December 12, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Face to Face
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2023 Defined Contribution East
      • 2023 ESG Investing