Trends toward passive investing reveal a potentially unsustainable course of lower margins and declining profits, with industry consolidation looking like an appealing solution.
Performance up: Active AUM growth has flattened as fees and spotty performance have sent cash out the door. Good performance in 2016 offset outflows and was the sole source of positive AUM growth.
Fees falling: The average passive fee has been stable for several years, while the average active management fee has been trending lower. The strain on margins is felt most by smaller managers while larger managers with passive funds can offset their active strategies’ declines.
The bottom line: The drive to lower fees is taking a toll on revenue growth. Asset managers in the S&P 500 have had steady increases in AUM, but fee and commission revenues have started to plateau.
Selling out or buying in? Acquisition is the preferred method of manager consolidation by volume of deals.
*Institutional mutual fund data was used as an industry proxy. Sources: Morningstar Direct, Bloomberg LP, P&I Research Center
Compiled and designed by Charles McGrath and Gregg A. Runburg