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Money Management

AUM up 11% in 2017, but not all managers benefited equally – McKinsey

Overall assets under management for North American money managers rose 11% to $88.5 trillion in 2017, although firms with more than $1 trillion saw the lion's share of net inflows, according to a McKinsey & Co. report released Thursday.

Eighty-eight percent of net flows for North American managers with more than $1 trillion in AUM were positive, according to the report, "North American Asset Management in 2018: The New Great Game." However, the percentage of positive net flows was lower for all other managers: 45% for those with $300 billion to $1 trillion in AUM; 55% for managers with $150 billion to $300 billion; 53% for firms with $50 billion to $150 billion; and 65% for managers with less than $50 billion under management.

The vast majority of net inflows — $540 billion — came from retail clients, up 2.9% from 2016, the report said. Defined contribution net inflows totaled $63 billion, up 0.9%; and net inflows from endowments and foundations were a combined $53 billion, up 3.6%.

However, flows from defined benefit plan clients were a net -$136 billion.

Top-quartile managers had higher operating margins for the year compared to those in the bottom quartile, according to the report. While the average operating margin in 2017 for all managers was 33% of revenue, up 3 percentage points from 2016, top-quartile firms had operating margins of 52%, vs. 51% in 2016; bottom-quartile managers had operating margins of 11%, up 2 percentage points from the previous year.

"Record-setting market performance, spurred by a return of the retail investor and sustained flows from emerging markets, made 2017 a banner year for the industry as a whole," the report said. "Yet, this rosy picture masked a gap between the haves and have-nots that grows ever wider, particularly when viewed through the prism of organic growth. … More strikingly, the industry's largest firms accounted for a disproportionate share of growth, with a set of 'trillionaires' generating more than 80% of all positive organic growth and several making significant gains in share even outside of passive products."

The full report is on McKinsey's website.