Forty-four percent of money managers invested in their firms from 2014 to 2017 without seeing an increase in profits, while 31% cut costs and contracted during that time period, according to a study by Casey Quirk, a practice of Deloitte Consulting, and compensation consultant McLagan.
Only 25% of money managers in the study, "Investing for Growth: Performance Intelligence 2018," were able to invest in their businesses and still increase their profits, according to Casey Quirk, which along with McLagan studied 95 managers in North America, Europe and Asia-Pacific.
Between 2011 and 2013, about 40% of asset managers maintained a profit, according to Casey Quirk. In the past several years, however, fee compression and increased passive investing made getting profits harder to achieve, said Amanda Walters, senior manager at Casey Quirk.
Most of the investments made by money managers involved the application of new technologies in the front office and in sales and distribution as a way to reduce costs, Ms. Walters said in an interview.
"Technology spending wasn't as important for managers (before 2014) because margins were so high, plus a lot of technology was not available back then," Ms. Walters said in an interview.
Profitable managers increased margins by a median 35% over the past three years, according to the study. Additionally, Ms. Walters said managers that charged a fee premium because they focused on high-growth profit strategies like infrastructure, real estate, private debt and multiasset investments were most likely to both invest in the company and increase profits.
Firms that increased margins and reinvested in their companies commanded an average 19% fee premium vs. their competitors, according to the study.