North American money managers' assets under management reached an all-time high of $31 trillion in 2014, up 5% from the previous year, said a report from management consulting firm McKinsey & Co.
The report, “Navigating the Shifting Terrain of North American Asset Management,” also says revenues jumped 15% from the previous year to $111 billion and profits were up 12% from the previous year, to $37 billion. The operating margin of 33% in 2014 was the highest since 2007, finally erasing the effects of the financial crisis that saw operating margins drop to a low of 22% in 2009.
Overall, the report emphasized the growth of the money management industry since 2009, specifically how the industry has benefited from a continuing evolution in asset allocation practices.
The report states 80% of new revenues and more than 60% of new assets in the five years between 2009 and 2014 have come from three categories: specialized diversification (alternatives), solutions-based products (target-date funds, tactical asset allocation funds, multiasset income funds) and special exposures (emerging markets, high yield).
“I think there are a lot of diverse opportunities,” said Ju-Hon Kwek, partner at McKinsey & Co., in a telephone interview, “but there are very significant distribution challenges … in terms of dealing with a fragmented base of multiple asset classes, all of which are interesting and attractive in their own right.”
“I think from an asset management perspective, it's a dizzying array of growth,” Mr. Kwek said.
The emergence of those asset classes “have been part of an overall product mix shift that helped the industry sustain healthy revenue margins, even in the face of a steady growth of passive assets,” the report said.
Sixteen percent of North American AUM consisted of passive assets in 2014, up from 12% the previous year. Passive strategies over the past five years in total have contributed $593 billion of all net flows into the money management industry, the report said. All other strategies combined for a total of $712 billion in outflows.
“I think the growth of passive is not inconsistent with the growth of active,” Mr. Kwek said. “I think what you're seeing in a very real way across the institutional and the retail portfolios is the kind of increased barbelling in the way that people look at portfolios.”
“There is a big push for passive domestic equities,” Mr. Kwek said. “On the other hand, there is an increased desire and hunger to be investing in things that are a little bit more alpha-generating, a little but more yield-generating, adding a little more diversification.”
The report is available on McKinsey's website.